Filed electronically with the Securities and Exchange Commission
on January 29, 1999
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 4
-- / X /
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 5
-- / X /
Kemper Securities Trust
-----------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
-------------
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)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ / On February 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485
/ X / On February 1, 1999 pursuant to paragraph (a)(3) 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
Part C - Page 1
<PAGE>
[KEMPER LOGO] KEMPER FUNDS
Kemper Equity Funds
Value Style
PROSPECTUS February 1, 1999
KEMPER EQUITY FUNDS VALUE STYLE
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 621-1048
This prospectus describes a choice of seven funds managed by Scudder Kemper
Investments, Inc.
Kemper Contrarian Fund
Kemper-Dreman Financial Services Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Relative Value Fund
Kemper Small Cap Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund*
* Kemper Value Fund refers to the Kemper shares of Value Fund.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
VALUE STOCK INVESTING
INVESTMENT APPROACH
Each of the funds presented in this prospectus uses a value approach to
investing -- that is, they look for common stocks that the investment manager
believes are undervalued.
The principal factors considered by a manager in identifying the value of a
stock may include:
o price-to-earnings (P/E) ratio;
o price-to-book (P/B) ratio;
o price-to-cash flow (P/CF) ratio; and/or
o dividend yield.
The objective of value investing is to reduce the risk of owning stocks by
investing in companies with sound finances whose current market prices are low
in relation to earnings or other measures of value. In determining whether a
company's finances are sound, the investment manager considers, among other
things, its ability to meet debt obligations as well as other liabilities.
In selecting among stocks for the funds' portfolios, the investment manager may
consider factors such as the following about the issuer:
o financial strength;
o book-to-market value;
o earnings growth rates;
o dividend growth rates;
o return on equity; and/or
o estimates of future earnings.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security. The value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.
Stock Market. Each fund's returns and net asset value will go up and down, and
it is possible to lose money invested in a fund. Stock market movements will
affect the funds' share prices on a daily basis. Declines are possible both in
the overall stock market or in the types of securities held by the funds.
Equity Investing. An investment in the common stock of a company represents a
proportionate ownership interest in that company. Therefore, the fund
participates in the success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered a greater potential for
gain on
2 Value Stock Investing
<PAGE>
investment. However, the market value of common stocks can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Value Investing. The determination that a stock is undervalued is subjective;
the market may not agree, and the stock's price may not rise to what the
investment manager believes is its full value. It may even decrease in value.
However, because of the fund's focus on undervalued stocks, the fund's downside
risk may be less than with other small company stocks since value stocks are in
theory already underpriced.
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives.
Inflation. There is a possibility that the rising prices of goods and services
may have the effect of offsetting a fund's real return.
Value Stock Investing 3
<PAGE>
ABOUT THE FUNDS
KEMPER CONTRARIAN FUND
Investment objective and strategies
Kemper Contrarian Fund seeks long-term capital appreciation with current income
as its secondary objective. Except as otherwise indicated, the fund's investment
objective and policies may be changed without a vote of shareholders.
This fund primarily invests in a diversified portfolio of the stocks of large
U.S. companies that the investment manager believes to be undervalued. Such
companies usually have a minimum market capitalization of $1 billion.
The investment manager looks for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividends yields above the market average;
o sound finances; and
o perceived intrinsic value.
The fund may invest 25% or more of its total assets in one or more market
sectors, such as the financial services sector.
The fund may be appropriate for investors who seek to add a core holding to
establish the foundation of a value-oriented portfolio or a value fund to
diversify their growth-equity investments.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. To the extent that the fund focuses its investments 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
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
4 Kemper Contrarian Fund
<PAGE>
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1989.................. 18.29%
1990.................. -6.08%
1991.................. 26.53%
1992.................. 11.32%
1993.................. 9.07%
1994.................. -.03%
1995.................. 44.57%
1996.................. 14.42%
1997.................. 28.73%
1998.................. 19.17%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 18.90% (the first quarter of 1991), and the fund's lowest
return for a calendar quarter was -20.59% (the third quarter of 1990).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C S&P 500
- ----------------- ------- ------- ------- -------
One Year 12.32% 15.08% 17.92% 28.60%
Five Years 19.05% -- -- 24.05%
Ten Years 15.11% -- -- 19.19%
Since Class Inception** 14.64% 21.58% 21.86% *
- ----------
* Index returns for the life of each class: 18.82% (3/31/88) for Class A and
28.88% (8/31/95) for Class B and C shares.
** Inception date for Class A, B and C shares is 3/18/88, 9/11/95 and
9/11/95, respectively.
The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of of
dividends and, unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper Contrarian Fund 5
<PAGE>
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other expenses 0.62% 0.81% 0.90%
Total Annual Fund Operating Expenses 1.37% 2.31% 2.40%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $706 $634 $343
3 Years $984 $1,021 $748
5 Years $1,282 $1,435 $1,280
10 Years $2,127 $2,193 $2,736
6 Kemper Contrarian Fund
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $706 $234 $243
3 Years $984 $721 $748
5 Years $1,282 $1,235 $1,280
10 Years $2,127 $2,193 $2,736
Principal strategies and investments
The fund invests primarily in a diversified portfolio of the stocks of large
U.S. companies that the investment manager believes are undervalued. Securities
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 or actual or anticipated unfavorable
developments affecting the company.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After the manager
screens for low price-to-earnings ratios, he analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that the investment manager believes have strong potential for long-term growth.
The investment manager analyzes earnings and dividend growth of companies and
seeks those investments that have had 5- and 10-year track records of
consistent, above-market earnings and dividend growth. The fund's style is to
own strong companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis. All of the research is done in-house and the portfolio
management team makes final investment decisions.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The manager also monitors a universe of 100 to 125
potentially promising candidates for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager may
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
Kemper Contrarian Fund 7
<PAGE>
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
8 Kemper Contrarian Fund
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Investment objective and strategies
The fund seeks to provide long-term capital appreciation. Except as otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
The fund primarily invests in a diversified portfolio of U.S. common stocks and
other equity securities of companies in the financial services sector believed
by the Fund's investment manager to be undervalued. The investment manager looks
for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividend yields above the market average;
o sound finances; and
o perceived intrinsic value.
The fund may be a good choice for more aggressive investors seeking to pursue
maximum capital appreciation, and for investors who are comfortable with a
concentrated investment in financial services stocks and other financial
services equity securities.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. The fund's concentration in investments in the financial
services sector creates greater risk than investment across various sectors or
industries, since the financial, economic, and business developments affecting
issuers in this sector may have a greater effect on the fund than if it had not
concentrated its assets in the financial services sector. In addition, an
investment in the fund may involve significantly greater risks and greater
volatility than a diversified equity mutual fund that is invested in issuers in
various sectors or industries. The fund is subject to the risk that a particular
group of related stocks will decline in price due to sector-specific
developments. As a result, the fund should only be considered a long-term
investment and part of a well-diversified portfolio.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper-Dreman Financial Services Fund 9
<PAGE>
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.80% 0.79% 0.76%
Total Annual Fund Operating Expenses 1.55% 2.29% 2.26%
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.36%, Class B to 2.14% and Class C to 2.11%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement has been changed for
the fiscal year ending September 30, 1999 as follows: the Total Annual Fund
Operating Expenses will be limited to 1.30% for Class A, 2.24% for Class B, and
2.21% for Class C, and this arrangement may be discontinued at any time. As a
result, for the fiscal year ended September 30, 1998, "Total Annual Fund
Operating Expenses" were reduced by 0.19%, 0.15% and 0.15% for Class A, Class B
and Class C and actual total annual fund operating expenses were 1.36% for Class
A, 2.14% for Class B and 2.11% for Class C. The information contained in the
above table and the example below reflects the expenses of the fund without
taking into account any applicable fee waivers and/or reimbursements.
10 Kemper-Dreman Financial Services Fund
<PAGE>
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $724 $632 $329
3 Years $1,036 $1,015 $706
5 Years $1,371 $1,425 $1,210
10 Years $2,314 $2,270 $2,595
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $724 $232 $229
3 Years $1,036 $715 $706
5 Years $1,371 $1,225 $1,210
10 Years $2,314 $2,270 $2,595
Principal strategies and investments
The Fund concentrates its investments in securities of financial services
companies, including:
o commercial banks;
o insurance companies;
o thrifts;
o consumer finance companies;
o commercial finance companies;
o leasing companies;
o securities brokerage firms;
o asset management firms; and
o government-sponsored financial enterprises.
In the opinion of the Fund's investment manager, the Fund offers investors the
opportunity to participate in the substantial long-term appreciation potential
of companies in the financial services sector.
Kemper-Dreman Financial Services Fund 11
<PAGE>
Under normal circumstances, the Fund will invest at least 65% of its assets in
equity securities of companies in the financial services industry. A company
will be considered to be within the financial services industry if at least 50%
of its assets, revenues or net income are related to or derived from the
financial services industry. Earnings and cash flow analyses as well as a
company's conventional dividend payout ratio are important factors in the
investment process. The fund may invest up to 35% of its assets in
investment-grade corporate debt securities.
The fund invests principally in a diversified portfolio of financial service
companies whose prices appear to be temporarily depressed due to short-term
fundamental factors. Securities may be undervalued as a result of overreaction
by investors to unfavorable news about a company, the financial services
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After screening for
low price-to-earnings ratios, the manager analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that have strong potential for long-term growth.
The investment manager analyzes earnings and dividends growth of companies and
seeks those investments that have had 5- and 10-year track records of consistent
above-market earnings and dividend growth. The fund's style is to own strong
companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The investment manager also monitors a universe of 100
to 125 potentially promising securities for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their P/Es rise above that of the market. The manager may choose to sell a
stock if the company's long-term fundamentals change unexpectedly for the worse.
A stock will also be sold if the company performs below the investment manager's
expectations for three to four years.
Although the fund does not presently intend to do so, it may invest up to 30% of
its total assets in foreign securities.
12 Kemper-Dreman Financial Services Fund
<PAGE>
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional risk
Foreign Investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
Kemper-Dreman Financial Services Fund 13
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Investment objective and strategies
Kemper-Dreman High Return Equity Fund seeks to achieve a high rate of total
return. Except as otherwise indicated, the fund's investment objective and
policies may be changed without a vote of shareholders. This fund primarily
invests in a diversified portfolio of the stocks of large U.S. companies that
the investment manager believes to be undervalued. Such companies currently have
a median market capitalization of $9 billion.
The investment manager looks for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividend yields above the market average;
o sound finances; and
o perceived intrinsic value through in-depth security analysis.
The fund is 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 are elements of total return.
The fund may invest 25% or more of its total assets in one or more market
sectors, such as the financial services sector.
The fund may be appropriate for investors who seek a core holding to establish
the foundation of a value-oriented portfolio or a value fund to diversify an
existing growth-equity portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. To the extent that the fund focuses its investments in a
market sector, financial, economic, business and other developments affecting
issues in that sector may have a greater effect on the fund than if it had not
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
14 Kemper-Dreman High Return Equity Fund
<PAGE>
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1989.................. 18.45%
1990.................. -8.63%
1991.................. 47.57%
1992.................. 19.80%
1993.................. 9.22%
1994.................. -.99%
1995.................. 46.86%
1996.................. 28.79%
1997.................. 31.92%
1998.................. 11.96%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 33.22% (the first quarter of 1991), and the fund's lowest
return for a calendar quarter was -22.84% (the third quarter of 1990).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C S&P 500
----------------- ------- ------- ------- -------
One Year 5.52% 8.01% 11.05% 28.60%
Five Years 21.12% -- -- 24.05%
Ten Years 18.48% -- -- 19.19%
Since Class Inception** 18.35% 24.61% 25.04% *
- ----------
* Index returns for the life of each class: 18.82% (3/31/88) for Class A and
28.88% (8/31/95) for Class B and C shares.
** Inception date for Class A, B and C shares is 3/18/88, 9/11/95 and
9/11/95, respectively.
The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of of
dividends and, unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper-Dreman High Return Equity Fund 15
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed
on Purchases (as % of offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.68% 0.68% 0.68%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.51% 0.63% 0.58%
Total Annual Fund Operating Expenses 1.19% 2.06% 2.01%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $689 $609 $304
3 Years $931 $946 $631
5 Years $1,192 $1,308 $1,083
10 Years $1,935 $1,961 $2,338
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $689 $209 $204
3 Years $931 $646 $631
5 Years $1,192 $1,108 $1,083
10 Years $1,935 $1,961 $2,338
16 Kemper-Dreman High Return Equity Fund
<PAGE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities
that the investment manager believes are undervalued. Securities 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, or actual or anticipated unfavorable
developments affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After screening for
low price-to-earnings ratios, the manager analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that have strong potential for long-term growth.
The investment manager analyzes earnings and dividend growth of companies and
seeks those investments that have had 5- and 10-year track records of
consistent, above-market earnings and dividend growth. The fund's style is to
own strong companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis. This is followed by thorough security analysis of all
potential stock selections.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The investment manager also monitors a universe of 100
to 125 potentially promising securities for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager may
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
Although the fund does not presently intend to do so, it may invest up to 20% of
its total assets in foreign securities.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
Kemper-Dreman High Return Equity Fund 17
<PAGE>
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional risk
Foreign investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
18 Kemper-Dreman High Return Equity Fund
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Investment objective and strategies
Kemper Small Cap Relative Value Fund seeks long-term capital appreciation.
Except as otherwise indicated, the fund's investment objective and policies may
be changed without a vote of shareholders.
The fund primarily invests in a diversified portfolio of the stocks of small
U.S. companies similar in size to those comprising the Russell 2000 Index that
the investment manager believes to be undervalued relative to other stocks in
the same sector by following a relative value investment strategy. The fund may
invest 25% or more of its total assets in one or more market sectors, such as
the financial services sector.
The fund may be appropriate for investors who seek to add the higher return
potential of small company stocks to their portfolio or those investors who seek
to diversify their existing portfolio with small company stocks.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Small company risk. While small company stocks have historically outperformed
large company stocks, they also have been subject to greater investment risk.
The risks generally associated with small companies include more limited product
lines, markets and financial resources, lack of management depth or experience,
dependency on key personnel and vulnerability to adverse market and economic
developments. Accordingly, the prices of small company stocks tend to be more
volatile than prices of large company stocks. Further, the prices of small
company stocks are often adversely affected by limited trading volumes and the
lack of publicly available information.
Also, because small companies normally have fewer shares outstanding and these
shares generally trade less frequently than large companies, it may be more
difficult for the fund to buy and sell significant amounts of small company
shares without having an unfavorable impact on the shares' stock market price.
Sector investing. To the extent that the fund focuses its investments 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
focused its assets in that sector.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
Kemper Small Cap Relative Value Fund 19
<PAGE>
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses(1) 11.61% 15.41% 10.93%
Total Annual Fund Operating Expenses 12.36% 16.91% 12.43%
- ----------
(1) Other expenses have been estimated for the current fiscal year.
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.52%, Class B to 2.40% and Class C to 2.37%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement may be discontinued
at any time. However, the investment manager has agreed to continue to waive
0.25% of its management fee until September 30, 1999. As a result, for the
fiscal year ended September 30, 1998, "Total Annual Fund Operating Expenses"
were reduced by 10.84%, 14.51% and 10.06% for Class A, Class B and Class C and
actual total annual fund operating expenses were 1.52% for Class A, 2.40% for
Class B and 2.37% for Class C. The information contained in the above table and
the example below reflects the expenses of the
20 Kemper Small Cap Relative Value Fund
<PAGE>
fund without taking into account any applicable fee waivers and/or
reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $1,697 $1,990 $1,297
3 Years $3,700 $4,525 $3,330
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $1,697 $1,590 $1,197
3 Years $3,700 $4,225 $3,330
Principal strategies and investments
The fund seeks long-term capital appreciation through a diversified portfolio of
small company stocks that the investment manager believes are undervalued.
Securities 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, or actual or anticipated
unfavorable developments affecting the company.
The investment manager follows a relative value investment strategy, seeking
undervalued small capitalization stocks from each major sector of the small
capitalization market as part of a well diversified, risk-managed portfolio. In
a relative value investment strategy, stocks are selected based on whether they
are undervalued relative to other stocks in the same sector. The relative value
strategy allows the fund to invest in all sectors, including technology,
healthcare and other areas of the market that typically are underweighted in an
absolute value portfolio.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of companies that are similar in size to those
comprising the Russell 2000 Index. Typically, most companies selected for
inclusion in the fund have market capitalizations ranging from approximately
$100 million to $1 billion. The fund sells securities of companies that have
grown in market
Kemper Small Cap Relative Value Fund 21
<PAGE>
capitalization above the maximum of the Russell 2000 Index, as necessary to keep
the fund focused on smaller companies.
The investment manager employs quantitative techniques in evaluating potential
investments and the impact each would have on the fund's portfolio. The
evaluation starts systematically by analyzing a large number of small company
stocks to uncover those with attractive valuations. Typically, the stocks
selected are:
o undervalued in the market based on measures such as earnings, sales, cash
flow and book value;
o experiencing favorable trends in sales, earnings, growth and prices; and
o considered to have acceptable financial risk and earnings predictability.
This systematic screening process is intended to enable the investment manager
to quickly respond to changes in the marketplace and reassess relative
valuations for the fund's holdings in order to make buy and sell decisions.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
22 Kemper Small Cap Relative Value Fund
<PAGE>
KEMPER SMALL CAP VALUE FUND
Investment objective and strategies
Kemper Small Cap Value Fund seeks long-term capital appreciation. Except as
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
This fund primarily invests in a diversified portfolio of the stocks of small
U.S. companies similar in size to those comprising the Russell 2000 Index that
the investment manager believes to be undervalued. The investment manager looks
for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o sound finances; and
o perceived intrinsic value through in-depth security analysis.
Although the fund does 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 fund may be appropriate for investors who seek a small capitalization
investment to diversify a large capitalization portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Small company risk. While small company stocks have historically outperformed
large company stocks, they also have been subject to greater investment risk.
The risks generally associated with small companies include more limited product
lines, markets and financial resources, lack of management depth or experience,
dependency on key personnel and vulnerability to adverse market and economic
developments. Accordingly, the prices of small company stocks tend to be more
volatile than prices of large company stocks. Further, the prices of small
company stocks are often adversely affected by limited trading volumes and the
lack of publicly available information.
Also, because small companies normally have fewer shares outstanding and these
shares generally trade less frequently than large companies, it may be more
difficult for the fund to buy and sell significant amounts of small company
shares without having an unfavorable impact on the shares' stock market price.
Kemper Small Cap Value Fund 23
<PAGE>
Sector investing. To the extent that the fund focuses its investments 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
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1993.................. 2.54%
1994.................. .15%
1995.................. 43.29%
1996.................. 29.60%
1997.................. 20.02%
1998.................. -12.82%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 16.94% (the fourth quarter of 1992), and the fund's lowest
return for a calendar quarter was -24.07% (the third quarter of 1998).
Average Annual Total Returns
For periods ended Russell
December 31, 1998 Class A Class B Class C 2000 Index
----------------- ------- ------- ------- ----------
One Year -17.81% -16.22% -13.60% -2.55%
Five Years 12.89% -- -- 11.87%
Ten Years -- -- -- --
Since Class Inception** 13.08% 7.40% 8.00% *
- ----------
* Index returns for the life of each class: 13.83% (5/31/92) for Class A and
11.67% (8/31/95) for Class B and C Shares.
** Inception date for Class A, B and C shares is 5/22/92, 9/11/95 and
9/11/95, respectively.
The Russell 2000 Index is a capitalization-weighted price only index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization) in the
Russell 3000 Index.
24 Kemper Small Cap Value Fund
<PAGE>
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.72% 0.72% 0.72%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.70% 0.87% 0.81%
Total Annual Fund Operating Expenses 1.42% 2.34% 2.28%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Kemper Small Cap Value Fund 25
<PAGE>
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $711 $637 $331
3 Years $999 $1,030 $712
5 Years $1,307 $1,450 $1,220
10 Years $2,179 $2,235 $2,615
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $711 $237 $231
3 Years $999 $730 $712
5 Years $1,307 $1,250 $1,220
10 Years $2,179 $2,235 $2,615
Principal strategies and investments
The fund seeks long-term capital appreciation by investing principally in a
diversified portfolio of undervalued small company equity securities. The
investment manager invests in companies whose prices appear to be temporarily
depressed due to short-term fundamental factors. Securities 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, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities of companies that are similar in size to those comprising
the Russell 2000 Index. The fund sells securities of companies that have grown
in market capitalization above the maximum of the Russell 2000 Index, as
necessary to keep focused on smaller companies.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Russell 2000 Index. After the manager screens for low price-to-earnings ratios,
he analyzes and compares other value measurements against the market. These
include price-to-book value and price-to-cash flow.
The fund's investment approach emphasizes companies that posses strong financial
positions. Considerable time is spent seeking potential investments that have
strong potential for long-term growth.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The manager also monitors a universe of 25 to 175
potentially promising candidates for future investment
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager
then
26 Kemper Small Cap Value Fund
<PAGE>
replaces them with other low price-to-earnings stocks. The manager may also
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Kemper Small Cap Value Fund 27
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Investment objective and strategies
Kemper U.S. Growth and Income Fund seeks to provide long-term growth of capital,
current income and growth of income. Except as otherwise indicated, the fund's
investment objectives and policies may be changed without a vote of
shareholders.
The fund primarily invests in a diversified portfolio of common stocks of large
U.S. companies that (i) offer the prospect for growth of earnings while paying
current dividends and (ii) the investment manager believes are undervalued.
Companies in which the fund invests generally are similar in size with the
median capitalization of companies represented in the Standard & Poor's 500
Composite Stock Price Index (S&P 500). The investment manager believes that,
over time, continued growth of earnings tends to lead to higher dividends and
enhancement of capital value.
The fund may be appropriate for investors who seek a conservative value holding
to add to their portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
28 Kemper U.S. Growth And Income Fund
<PAGE>
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.60% 0.60% 0.60%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 1.99% 2.14% 1.90%
Total Annual Fund Operating Expenses 2.59% 3.49% 3.25%
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.36%, Class B to 2.01% and Class C to 1.99%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement may be discontinued
at any time. As a result, for the fiscal year ended September 30, 1998, "Total
Annual Fund Operating Expenses" were reduced by 1.23%, 1.48% and 1.26% for Class
A, Class B and Class C and actual total annual fund operating expenses were
1.36% for Class A, 2.01% for Class B and 1.99% for Class C. The information
contained in the above table and the example below reflects the expenses of the
fund without taking into account any applicable fee waivers and/or
reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $822 $752 $428
3 Years $1,334 $1,371 $1,001
5 Years $1,871 $2,012 $1,698
10 Years $3,331 $3,380 $3,549
Kemper U.S. Growth And Income Fund 29
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $822 $352 $328
3 Years $1,334 $1,071 $1,001
5 Years $1,871 $1,812 $1,698
10 Years $3,331 $3,380 $3,549
Principal strategies and investments
The fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by U.S. common stocks and other
domestic equity securities. It maintains a diversified portfolio of equity
securities of companies with higher-than-average dividend payouts. These
companies, many of which are mainstays of the U.S. economy, may offer prospects
for future growth of earnings and dividends, and therefore may offer investors
attractive long-term investment opportunities. The fund will invest at least 80%
of its assets in the equity securities of U.S. issuers.
In the investment manager's opinion, this subset of higher relative yielding
stocks identified by applying these criteria offers the potential for returns
over time that are greater than or equal to the S&P 500, at less risk than this
market index. The investment manager believes these favorable risk and return
characteristics exist because the higher dividends offered by these stocks may
act as a "cushion" when markets are volatile and because stocks with higher
relative yields tend to sell at more attractive valuations (e.g., lower
price-to-earning ratios and lower price-to- book ratios).
Once this subset of higher relative yielding stocks is identified, the
investment manager conducts a fundamental analysis of each company's financial
strength, profitability, projected earnings, sustainability of dividends,
competitive outlook, and ability of management. The fund's portfolio may include
stocks that are out of favor in the market, but which, in the opinion of the
investment manager, offer compelling valuations and potential for long-term
appreciation in price and dividends.
In order to diversify the fund's portfolio among different industry sectors, the
investment manager evaluates how each sector reacts to broad economic factors
such as interest rates, inflation, Gross Domestic Product, and consumer
spending.
The investment manager has disciplined criteria for selling stocks as well. When
the investment manager determines that the relative yield of a stock has
declined excessively below the yield of the S&P 500, or that the relative yield
is at the lower end of the stock's historic range, the stock generally is sold
from the fund's portfolio. Similarly, if the investment manager's fundamental
analysis determines that the payment of the stock's dividend is at risk, or that
market expectations for the stock are unreasonably high, the stock is generally
targeted for sale.
In summary, the investment manager applies disciplined buy and sell criteria,
fundamental company and industry analysis, and economic forecasts in
30 Kemper U.S. Growth And Income Fund
<PAGE>
managing the fund to pursue long-term price appreciation and income with a
tendency for lower overall volatility than the market, as measured by the S&P
500.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. Because this defensive policy differs from the fund's
investment objective, the fund may not achieve its goals during a defensive
period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Kemper U.S. Growth And Income Fund 31
<PAGE>
KEMPER VALUE FUND
Investment objective and strategies
Value Fund seeks long-term growth of capital through investment in undervalued
equity securities. Except as otherwise indicated, the fund's investment
objective and policies may be changed without a vote of shareholders.
The fund invests in the stock of companies that the investment manager believes
are undervalued in the marketplace in relation to current and estimated future
earnings and dividends. These companies generally sell at price-to-earnings
ratios below the market average, as defined by the Standard & Poor's 500
Composite Stock Price Index (S&P 500).
The fund may be appropriate for investors who seek a core holding to establish
the foundation of a value-oriented portfolio or a value fund to diversify an
existing growth-equity portfolio.
This prospectus contains information regarding Class A, B and C shares of the
fund.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
fund currently offers four classes of shares. The original class of shares is
designated Class S. This prospectus sets forth information about Class A, B and
C. Because Class A, B and C commenced operating during the course of 1998, the
performance information set forth below is for Class S shares, and does not
reflect sales charges, which reduce return. All share classes invest in the same
underlying portfolio of securities and have the same management team. Because of
different fees and expenses, performance of share classes will differ.
32 Kemper Value Fund
<PAGE>
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1993.................. 11.60%
1994.................. 1.65%
1995.................. 30.17%
1996.................. 22.99%
1997.................. 35.35%
1998.................. 11.90%
For the period included in the bar chart, the Class S Shares highest return for
a calendar quarter was 17.07% (the fourth quarter of 1998), and the Class S
Shares lowest return for a calendar quarter was -15.34% (the third quarter of
1998).
Average annual total returns
For periods ended Russell 1000
December 31, 1998 Fund S&P 500 Value Index
----------------- ---- ------- -----------
One Year 11.90% 28.72% 15.65%
Five Years 19.77% 24.08% 20.84%
Since Inception (12/31/92) 18.36% 21.62% 20.39%
The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc. Index returns assume reinvestment of dividends and,
unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper Value Fund 33
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed
on Purchases (as % of offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund
assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.70% 0.70% 0.70%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.64% 0.67% 0.66%
Total Annual Fund Operating Expenses 1.34% 2.12% 2.11%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $136 $627 $317
3 Years $425 $991 $661
5 Years $734 $1,139 $1,134
10 Years $1,613 $2,452 $2,441
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $136 $215 $214
3 Years $425 $664 $661
5 Years $734 $1,370 $1,134
10 Years $1,613 $2,452 $2,441
34 Kemper Value Fund
<PAGE>
Principal strategies and investments
The fund invests at least 80% of its assets in equity securities, primarily
common stocks of medium- to large-sized domestic companies with annual revenues
or market capitalization of at least $1 billion. The investment manager uses
in-depth fundamental research and a proprietary computerized quantitative model
to identify companies that are currently undervalued in relation to current and
estimated future earnings and dividends. The investment process also involves an
assessment of business risk, including analysis of:
o the strength of a company's balance sheet;
o the accounting practices a company follows;
o the volatility of a company's earnings over time; and
o the vulnerability of earnings to changes in external factors, such as the
general economy, the competitive environment, governmental action and
technological change.
While a broad range of investments is considered, only those that, in the
investment manager's opinion, are selling at comparatively large discounts to
intrinsic value are purchased for the fund. It is anticipated that the prices of
the fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.
The fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. In addition to
identifying undervalued securities, the quantitative model also provides the
discipline required to identify and sell appreciated securities as their prices
rise to reflect their earnings potential. The model relies on the investment
manager's independent equity research efforts for estimates of future earnings
and dividend growth and proprietary quality ratings, an important measure of
risk.
While the fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to the
fund's domestic investments.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. Because this defensive policy differs from the fund's
investment objective, the fund may not achieve its goals during a defensive
period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional principal risks
Foreign Investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
Kemper Value Fund 35
<PAGE>
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
36 Kemper Value Fund
<PAGE>
INVESTMENT MANAGER
The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide. It manages more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Each fund pays Scudder Kemper Investments, Inc. a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are shown below:
As a % of average daily net assets
----------------------------------
Kemper Contrarian Fund 0.75%
Kemper-Dreman High Return Equity Fund 0.68%
Kemper Small Cap Value Fund 0.72%
Kemper Value Fund 0.70%
Kemper Small Cap Relative Value Fund and Kemper-Dreman Financial Services Fund
each pay Scudder Kemper Investments, Inc. a (graduated) monthly investment
management fee at the following annual rate:
Applicable Assets($) Annual Fee Rate
-------------------- ---------------
0-250,000,000 0.75%
250,000,000-1,000,000,000 0.72%
1,000,000,000-2,500,000,000 0.70%
2,500,000,000-5,000,000,000 0.68%
5,000,000,000-7,500,000,000 0.65%
7,500,000,000-10,000,000,000 0.64%
10,000,000,000-12,500,000,000 0.63%
More than 12,500,000,000 0.62%
Kemper U.S. Growth and Income Fund pays Scudder Kemper Investments, Inc. a
(graduated) monthly investment management fee at the following annual rate:
Applicable Assets($) Annual Fee Rate
-------------------- ---------------
0-250,000,000 0.60%
250,000,000-1,000,000,000 0.57%
1,000,000,000-2,500,000,000 0.55%
More than 2,500,000,000 0.63%
Investment Manager 37
<PAGE>
For Kemper Small Cap Relative Value Fund, the investment manager has agreed to
waive 0.25% of its management fee until September 30, 1999.
Pursuant to a sub-advisory agreement with Scudder Kemper Investments, Inc.,
Dreman Value Management L.L.C., 10 Exchange Place, Jersey City, New Jersey, is
the sub-adviser for the Kemper-Dreman High Return Equity Fund and Kemper-Dreman
Financial Services Fund and receives a fee for its services from Scudder Kemper
Investments. Founded in 1977, Dreman Value Management, L.L.C. manages over $7
billion in assets.
Dreman Value Management, L.L.C. manages the investment and reinvestment of the
Kemper-Dreman High Return Equity Fund's and Kemper-Dreman Financial Services
Fund's assets, in accordance with their investment objectives, policies and
limitations, subject to the supervision of Scudder Kemper Investments and the
Board of Directors. Dreman Value Management, L.L.C. receives a fee for its
services from Scudder Kemper Investments, Inc.
Scudder Kemper Investments, Inc. pays Dreman Value Management, L.L.C. for its
services a sub-advisory fee for each of Kemper-Dreman High Return Equity Fund
and Kemper-Dreman Financial Services Fund, payable monthly, at the annual rate
of 0.24% of the first $250 million of the fund's average daily net assets; 0.23%
of the average daily net assets between $250 million and $1 billion; 0.224% of
average daily net assets between $1 billion and $2.5 billion; 0.218% of average
daily net assets between $2.5 billion and $5 billion; 0.208% of average daily
net assets between $5 billion and $7.5 billion; 0.205% of average daily net
assets between $7.5 billion and $10 billion; 0.202% of average daily net assets
between $10 billion and $12.5 billion and 0.198% of the Fund's average daily net
assets over $12 billion.
In addition, Scudder Kemper Investments, Inc. has guaranteed to pay a minimum of
$8 million to Dreman Value Management, L.L.C. during each of the calendar years
of 2000, 2001 and 2002 that Dreman Value Management, L.L.C. serves as
sub-adviser.
38 Investment Manager
<PAGE>
PORTFOLIO MANAGEMENT
The following investment professionals are associated with the funds as
indicated:
Kemper Contrarian Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Thomas F. Sassi, 1997 Joined Scudder Kemper in 1996. He
Lead Portfolio Manager began his investment career in
1971. Prior to joining Scudder
Kemper he was a Vice President and
Portfolio Manager for an
unaffiliated life insurance and
investment management firm.
Frederick L. Gaskin, 1997 Joined Scudder Kemper in 1996. He
Portfolio Manager began his investment career in
1986. Prior to joining Scudder
Kemper he was a Vice President and
Portfolio Manager for a bank.
- --------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
Kemper-Dreman High Return Equity Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
David N. Dreman, Lead 1988 Chairman of Dreman Value
Portfolio Manager Management, L.L.C. since 1977. He
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
began his investment career in
1957.
- --------------------------------------------------------------------------------
Kemper Small Cap Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Thomas H. Forester, 1997 Joined Scudder Kemper in 1997. He
Co-Lead Portfolio began his investment career in
Manager 1988. Prior to joining Scudder
Kemper he was a Senior Vice
President and Senior Portfolio
Manager at an unaffiliated
investment management company.
Steven T. Stokes, 1997 Joined Scudder Kemper in 1996. He
Co-Lead Portfolio began his investment career in
Manager 1986. Prior to joining Scudder
Kemper he was an equity analyst and
part of the portfolio management
team at an unaffiliated investment
company.
- --------------------------------------------------------------------------------
Investment Manager 39
<PAGE>
Kemper Small Cap Relative Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
James M. Eysenbach, 1998 Joined Scudder Kemper in 1986
Lead Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1984.
Philip S. Fortuna, 1998 Joined Scudder Kemper in 1991
Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1984.
Calvin S. Young, 1998 Joined Scudder Kemper in 1990
Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1988.
- --------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Lori J. Ensinger, Lead 1998 Joined Scudder Kemper in 1993. She
Portfolio Manager began her investment career in
1983. Prior to joining Scudder
Kemper she was a Senior Portfolio
Manager who managed portfolios for
both institutions and individuals
for an unaffiliated investment
management firm.
Robert T. Hoffman, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in
1985. Prior to joining Scudder
Kemper he was Assistant State
Treasurer for the state of New
Jersey.
Benjamin W. Thorndike, 1998 Joined Scudder Kemper in 1983. He
Portfolio Manager began his investment career in
1980. Prior to joining Scudder
Kemper he was an investment officer
for a bank.
- --------------------------------------------------------------------------------
40 Investment Manager
<PAGE>
Kemper Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Donald E. Hall, 1992 Joined Scudder Kemper in 1982. He
Lead Portfolio Manager began his investment career in
1982. Prior to joining Scudder
Kemper he received an M.B.A. from
Harvard Business School after
working as a sales engineer for an
international aluminum products
manufacturer.
William J. Wallace, 1992 Joined Scudder Kemper in 1987. He
Portfolio Manager began his investment career in
1981. Prior to joining Scudder
Kemper he performed product
management and client relations for
a variety of trustee banks.
- --------------------------------------------------------------------------------
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund rely,
which primarily include those used by the investment manager, 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, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager 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 issuers whose securities are held by a fund or on
global markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of each fund. The Euro
was introduced on January 1, 1999 by eleven European countries that are members
of the European Economic and Monetary Union (EMU). The introduction of the Euro
will require the redenomination of European debt and equity securities over a
period of time, which may result in various accounting differences and/or tax
treatments. Additional questions are raised by the fact that certain other
European community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
The investment manager is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a fund's holdings is negative, it
could hurt the fund's performance.
Investment Manager 41
<PAGE>
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
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 re deemed 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 without an initial
sales charge, but subject to a 0.75% 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 0.75% 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.
- --------------------------------------------------------------------------------
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors 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. For more information about these sales
arrangements, consult your financial representative or Kemper Service Company,
the Shareholder Service Agent. Be aware that financial services firms may
receive different compensation depending upon which class of shares they sell.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and other services provided to
shareholders of those classes. Because 12b-1 fees are paid out of fund assets on
an ongoing basis, they will, over time, increase the cost of investment and may
cost more than other types of sales charges. Long-term shareholders may pay more
than the economic equivalent of the maximum initial sales charges
42 About Your Investment
<PAGE>
permitted by the National Association of Securities Dealers, although Kemper
Distributors, Inc. believes that it is unlikely, in the case of Class B shares,
because of the automatic conversion feature of those shares
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 most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. 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.
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 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 -- Large Order NAV Purchase Privilege. Class A shares of a fund
may be purchased at net asset value by any purchaser provided that the amount
invested in such fund or other Kemper Mutual Funds totals at least $1,000,000
including purchases of Class A shares pursuant to the "Combiner Purchases,"
"Letter of Intent" and "Cumulative Discount" features described above (the
"Large Order NAV Purchase Privilege").
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services.
For purposes of determining any 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.
About Your Investment 43
<PAGE>
BUYING SHARES
You may purchase shares of a fund by contacting the securities dealer or other
financial services firm from whom your received this prospectus.
CLASS A SHARES
Public Offering Price Including Sales Charge
Sales Charge
------------
As a % of As a % of Net
Amount of Purchase Offering Price Amount Invested*
------------------ -------------- ----------------
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71%
$100,000 but less than $250,000 3.50 3.63%
$250,000 but less than $500,000 2.60 2.67%
$500,000 but less than $1 million 2.00 2.04%
$1 million and over 0.00** 0.00**
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
NAV Purchases
Class A shares of a fund may be purchased at net asset value by:
o shareholders in connection with the investment or reinvestment of income
and capital gain dividends
o a participant-directed qualified retirement plan or a participant-directed
non-qualified deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a K-12 school
district, provided in each case that such plan has not less than 200
eligible employees
o any purchaser with Kemper Funds investment totals of at least $1,000,000
o unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs
o 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 or any trust, pension, profit-sharing or other benefit plan
for only such persons
o persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm
o registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors or any trust, pension,
profit-sharing or other benefit plan for only such persons
44 About Your Investment
<PAGE>
o officers, directors, and employees of service agents of the funds
o 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)
o selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the funds pursuant to an agreement with Kemper
Distributors or one of its affiliates
o certain professionals who assist in the promotion of Kemper Funds pursuant
to personal services contracts with Kemper Distributors, for themselves or
members of their families
o in connection with the acquisition of the assets of or merger or
consolidation with another investment company
o 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 or any trust, pension, profit-sharing or
other benefit plan for only such persons
o persons who purchase shares of the fund through Kemper Distributors as
part of an automated billing and wage deduction program administered by
RewardsPlus of America
o through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms, acting solely as
agent for their clients, that adhere to certain standards established by
Kemper Distributors, including a requirement that such shares be purchased
for the benefit of their clients participating in an investment advisory
program or agency commission program under which such clients pay a fee to
the investment advisor or other firm for portfolio management or agency
brokerage services.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: 1% if
they are redeemed within one year of purchase and 0.50% if 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 being redeemed, excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o redemption of shares of a shareholder (including a registered joint owner)
who after purchase of the shares being redeemed becomes totally disabled
About Your Investment 45
<PAGE>
(as evidenced by a determination by the federal Social Security
Administration)
o redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by a
K-12 school district
o redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates
o redemptions of shares whose dealer of record at the time of the investment
notifies Kemper Distributors that the dealer waives the commission
applicable to such Large Order NAV Purchase.
Rule 12b-1 Fee
None
Exchange Privilege
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any Kemper Fund or a Money Market Fund without
paying any contingent deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed.
CLASS B SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class B
shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
- -------------------------------------------------------------------------------
Year of Redemption
After Purchase: First Second Third Fourth Fifth Sixth
- -------------------------------------------------------------------------------
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
- -------------------------------------------------------------------------------
The contingent deferred sales charge will be waived:
o 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)
46 About Your Investment
<PAGE>
o 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
o for redemptions made pursuant to a systematic withdrawal plan
o 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
o in the event of the death of the shareholder (including a registered joint
owner)
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:
o 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)
o redemptions in connection withy retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in a fund)
o redemptions in connection with distributions qualifying under the hardship
provisions of the Code
o redemptions representing returns of excess contributions to such plans.
Rule 12b-1 Fee
0.75%
Conversion Feature
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. 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.
Exchange Privilege
Class B shares of a fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without a contingent
deferred sales charge.
About Your Investment 47
<PAGE>
CLASS C SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
o A contingent deferred sales charge of 1% may be imposed upon redemption of
Class C shares redeemed within one year of purchase. The charge will not
be imposed upon redemption of reinvested dividends or share appreciation.
The contingent deferred sales charge will be waived in the event of:
o 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
o redemptions by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o 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)
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o 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
o 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.
Rule 12b-1 Fee
0.75%
Conversion Feature
None
Exchange Privilege
Class C shares of a fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge.
48 About Your Investment
<PAGE>
SELLING AND EXCHANGING SHARES
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
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.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Fund.
The rate of the contingent deferred charge is determined by the length of the
period of ownership. Investments are tracked on a monthly basis. The period of
ownership for this purpose begins the first day of the month in which the order
for the investment is received, For example, an investment made in December,
1996 will be eligible for the second year's charge if redeemed on or after
December 1, 1997. In the event no specific order is requested when redeeming
shares subject to a contingent deferred sales charge, 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.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, 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. The redemption request and stock power must be
signed exactly as the account is registered, including any special capacity of
the registered owner. Additional documentation may be requested, and a signature
guarantee is normally required, from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under the Uniform Transfers to
Minors Act), executors, administrators, trustees or guardians.
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. 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. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
About Your Investment 49
<PAGE>
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
Kemper Contrarian Fund, Kemper U.S. Growth and Income Fund and Kemper-Dreman
High Return Equity Fund normally distribute quarterly dividends of net
investment income. Kemper Small Cap Value Fund, Kemper Small Cap Relative Value
Fund and Kemper Value Fund normally distribute annual dividends of net
investment income. The Kemper-Dreman Financial Services Fund normally
distributes dividends of net investment income semi-annually. Each fund
distributes any net realized short-term and long-term capital gains at least
annually.
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 Kemper Service Company, 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
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
Kemper Service Company, the Shareholder Service Agent, you may choose to have
dividends of a fund invested in shares of the same class of another Kemper Fund
at the net asset value of that class and fund. To use this privilege, you 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 you request that such
policy not be applied to your account.
Distributions are generally taxable, whether received in cash or reinvested.
Taxes
Dividends from net investment income and net short-term capital gains, if any,
are taxable to you as ordinary income. Long-term capital gains distributions, if
any, are taxable to you as long-term capital gains, regardless of how long you
have owned shares. Short-term capital gains and any other taxable income
distributions are taxable to you as ordinary income. A portion of dividends from
ordinary income may qualify for the dividends-received deduction for
corporations.
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, is taxable to you.
50 About Your Investment
<PAGE>
A sale or exchange of your shares is a taxable event and may result in a capital
gain or loss which may be long-term or short term, generally depending on how
long you owned the shares.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
The fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Any such withheld amounts may be credited against your U.S. federal
income tax liability.
You may be subject to state, local and foreign taxes on fund distributions and
dispositions of fund shares. You should consult your tax advisor regarding the
particular tax consequences of an investment in a fund.
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices are used to determine the value of the funds' assets.
If reliable market prices are not readily available for a security or if a
security's price is not considered to be market indicative, that security may be
valued by another method that the Board or its delegate believes accurately
reflects fair value. In those circumstances where a security's price is not
considered to be market indicative, the security's valuation may differ from an
available market quotation.
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 a fund's net
assets attributable to that class, less all liabilities, by the number of shares
of that class outstanding. The per share net asset value of the Class B and
Class C shares of a fund will generally be lower than that of the Class A shares
of a fund because of the higher annual expenses borne by the Class B and Class C
shares.
To the extent that a fund invests in foreign securities, these securities may be
listed on foreign exchanges that trade on days when the fund does not price its
shares. As a result, the net asset value per share of a fund may change at a
time when shareholders are not able to purchase or redeem their shares.
About Your Investment 51
<PAGE>
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from receipt by a fund of the purchase amount.
The redemption of shares within certain time periods may be subject to
contingent deferred sales charges, as noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholders of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The funds will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and Kemper Distributors, Inc. each reserves the right to reject purchases
of fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. 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 its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an
52 About Your Investment
<PAGE>
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.
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 Kemper Service
Company, the Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in kind"). These securities will be chosen by the fund and valued as they are
for purposes of computing the fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.
About Your Investment 53
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the funds' or certain
classes of a fund's financial performance for the periods reflected below.
Certain information reflects financial results for a single fund share. The
total return figures show what an investor in a fund (or certain classes of a
fund) would have earned (or lost) assuming reinvestment of all distributions.
This information, for all funds except Value Fund, has been audited by Ernst &
Young LLP. With respect to Value Fund, this information has been audited by
Pricewaterhouse Coopers LLP. The report of each of the auditors, along with the
fund's financial statements, are included in the funds' annual reports, which
are available upon request by calling the Kemper Funds at 1-800-621-1048.
Kemper Contrarian Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $21.13 16.93 16.20 12.18 13.62
- ----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .28 .23 .23 .26 .28
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 3.48 4.25 2.07 5.05 (.28)
- ----------------------------------------------------------------------------------------
Total from investment
operations 3.76 4.48 2.30 5.31 --
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .27 .20 .22 .24 .28
- ----------------------------------------------------------------------------------------
Distribution from net
realized gain 1.72 .08 1.35 1.05 1.16
- ----------------------------------------------------------------------------------------
Total dividends 1.99 .28 1.57 1.29 1.44
- ----------------------------------------------------------------------------------------
Net asset value, end of period $22.90 21.13 16.93 16.20 12.18
- ----------------------------------------------------------------------------------------
Total return (not annualized) 19.51% 26.58 14.42 44.57 (.03)
- ----------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.37% 1.35 1.23 1.25 1.25
- ----------------------------------------------------------------------------------------
Net investment income 1.36% 1.47 1.56 1.85 1.89
- ----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.37% 1.35 1.25 1.66 1.42
- ----------------------------------------------------------------------------------------
Net investment income 1.36% 1.47 1.54 1.44 1.71
- ----------------------------------------------------------------------------------------
</TABLE>
54 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.08 16.92 16.20 15.26
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .08 .08 .11 .07
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain 3.46 4.22 2.07 1.85
- ----------------------------------------------------------------------------------------
Total from investment operations 3.54 4.30 2.18 1.92
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .06 .11 .07
- ----------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- ----------------------------------------------------------------------------------------
Total dividends 1.80 .14 1.46 .98
- ----------------------------------------------------------------------------------------
Net asset value, end of period $22.82 21.08 16.92 16.20
- ----------------------------------------------------------------------------------------
Total return (not annualized) 18.32% 25.44 13.61 12.83
- ----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.31% 2.26 2.11 2.00
- ----------------------------------------------------------------------------------------
Net investment income .42% .56 .68 .88
- ----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.31% 2.26 2.34 2.36
- ----------------------------------------------------------------------------------------
Net investment income .42% .56 .45 .52
- ----------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 55
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.06 16.90 16.20 15.26
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .06 .11 .08
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.47 4.20 2.05 1.85
- ---------------------------------------------------------------------------------------------
Total from investment operations 3.52 4.26 2.16 1.93
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .04 .02 .11 .08
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- ---------------------------------------------------------------------------------------------
Total dividends 1.76 .10 1.46 .99
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $22.82 21.06 16.90 16.20
- ---------------------------------------------------------------------------------------------
Total return (not annualized) 18.25% 25.26 13.51 12.85
- ---------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.40% 2.47 2.12 1.95
- ---------------------------------------------------------------------------------------------
Net investment income .33% .35 .67 .93
- ---------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.40% 2.47 2.80 2.31
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .33% .35 (.01) .57
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $263,713 178,115 77,592 25,482 12,983
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 64% 77 95 30 16
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges.
Scudder Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the period ended
December 31, 1996. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
56 Financial Highlights
<PAGE>
Kemper-Dreman Financial Services Fund
<TABLE>
<CAPTION>
For the period from March 9, 1998
(commencement of operations)
to November 30, 1998
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .03 (.01) (.01)
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .12 .10 .12
- ---------------------------------------------------------------------------------------------
Total from investment operations .15 .09 .11
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $9.65 9.59 9.61
- ---------------------------------------------------------------------------------------------
Total return (not annualized) 1.58% .95 1.16
- ---------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.36% 2.14 2.11
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .55% (.23) (.20)
- ---------------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 1.55% 2.29 2.26
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .36% (.38) (.35)
- ---------------------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period (in thousands) $224,161
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5%
- ---------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net Assets are computed without this expense waiver or
absorption.
Financial Highlights 57
<PAGE>
Kemper-Dreman High Return Equity Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $33.52 26.52 21.49 15.11 15.50
- ------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .73 .54 .39 .26 .25
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 3.80 6.89 5.75 6.76 (.39)
- ------------------------------------------------------------------------------------------------
Total from investment
operations 4.53 7.43 6.14 7.02 (.14)
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .86 .37 .38 .24 .25
- ------------------------------------------------------------------------------------------------
Distribution from net
realized gain 1.50 .06 .73 .40 --
- ------------------------------------------------------------------------------------------------
Total dividends 2.36 .43 1.11 .64 .25
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $35.69 33.52 26.52 21.49 15.11
- ------------------------------------------------------------------------------------------------
Total return (not annualized) 14.25% 28.15 28.79 46.86 (.99)
- ------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.19% 1.22 1.21 1.25 1.25
- ------------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.55 1.58
- ------------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.19% 1.22 1.21 1.57 1.39
- ------------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.23 1.44
- ------------------------------------------------------------------------------------------------
</TABLE>
58 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $33.37 26.44 21.47 19.45
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .31 .19 .07
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 3.75 6.84 5.72 2.41
- ---------------------------------------------------------------------------------------
Total from investment operations 4.20 7.15 5.91 2.48
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .56 .16 .21 .06
- ---------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- ---------------------------------------------------------------------------------------
Total dividends 2.06 .22 .94 .46
- ---------------------------------------------------------------------------------------
Net asset value, end of period $35.51 33.37 26.44 21.47
- ---------------------------------------------------------------------------------------
Total return (not annualized) 13.22% 27.10 27.63 12.88
- ---------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.06% 2.12 2.20 2.00
- ---------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.13 .61
- ---------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.06% 2.12 2.31 2.35
- ---------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.02 .26
- ---------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 59
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $33.38 26.45 21.48 19.45
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .32 .20 .09
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain 3.79 6.83 5.72 2.41
- -----------------------------------------------------------------------------------------
Total from investment operations 4.24 7.15 5.92 2.50
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .58 .16 .22 .07
- -----------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- -----------------------------------------------------------------------------------------
Total dividends 2.08 .22 .95 .47
- -----------------------------------------------------------------------------------------
Net asset value, end of period $35.54 33.38 26.45 21.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) 13.32% 27.10 27.66 12.94
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.01% 2.10 2.22 1.95
- -----------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.11 .66
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.01% 2.10 2.33 2.30
- -----------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.00 .31
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $5,188,621 2,931,721 737,834 98,196 35,005
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 7% 5 10 18 12
- --------------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. waived a portion of its management fee and absorbed
certain operating expenses of the fund through the year ended December 31, 1996.
The Other Ratios to Average Net Assets are computed without this expense waiver
or absorption.
60 Financial Highlights
<PAGE>
Kemper Small Cap Relative Value Fund
<TABLE>
<CAPTION>
For the period from May 6, 1998
(commencement of operations)
to September 30, 1998
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.03) (.03)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized loss (1.93) (1.93) (1.92)
- ------------------------------------------------------------------------------------------------
Total from investment operations (1.93) (1.96) (1.95)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $7.57 7.54 7.55
- ------------------------------------------------------------------------------------------------
Total return (not annualized) (20.32)% (20.63) (20.53)
- ------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the Fund 1.52% 2.40 2.37
- ------------------------------------------------------------------------------------------------
Net investment loss (.15)% (1.03) (1.00)
- ------------------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 12.36% 16.91 12.43
- ------------------------------------------------------------------------------------------------
Net investment loss (10.99)% (15.54) (11.06)
- ------------------------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------------------------
Net assets at end of period $1,757,385
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 7%
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption. Per share data
were determined based on average shares outstanding.
Financial Highlights 61
<PAGE>
Kemper Small Cap Value Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $21.83 18.28 14.50 10.85 11.23
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .06 .05 .14 (.02) --
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) (3.39) 3.50 4.14 4.64 .02
- -----------------------------------------------------------------------------------------------
Total from investment
operations (3.33) 3.55 4.28 4.62 .02
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- -- .07 -- --
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .70 -- .43 .97 .40
- -----------------------------------------------------------------------------------------------
Total dividends .70 -- .50 .97 .40
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $17.80 21.83 18.28 14.50 10.85
- -----------------------------------------------------------------------------------------------
Total return (not annualized) (15.69)% 19.42 29.60 43.29 .15
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.42% 1.32 1.31 1.25 1.25
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .87 (.16) (.03)
- -----------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.42% 1.32 1.47 1.83 1.82
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .71 (.74) (.61)
- -----------------------------------------------------------------------------------------------
</TABLE>
62 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
months
Year ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.46 18.14 14.48 15.75
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12) (.04) .01 (.02)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (3.31) 3.36 4.11 (.41)
- -----------------------------------------------------------------------------------------
Total from investment operations (3.43) 3.32 4.12 (.43)
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -----------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -----------------------------------------------------------------------------------------
Net asset value, end of period $17.33 21.46 18.14 14.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) (16.45)% 18.30 28.54 (2.52)
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.34% 2.34 2.12 2.00
- -----------------------------------------------------------------------------------------
Net investment income (loss) (.67)% (.51) .06 (.99)
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.34% 2.34 2.49 2.39
- -----------------------------------------------------------------------------------------
Net investment loss (.67)% (.51) (.31) (1.38)
- -----------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 63
<PAGE>
<TABLE>
<CAPTION>
Eleven
months
Year ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.51 18.17 14.48 15.75
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12) (.03) .01 (.02)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (3.30) 3.37 4.14 (.41)
- -----------------------------------------------------------------------------------------
Total from investment operations (3.42) 3.34 4.15 (.43)
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -----------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -----------------------------------------------------------------------------------------
Net asset value, end of period $17.39 21.51 18.17 14.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) (16.37)% 18.38 28.77 (2.51)
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.28% 2.24 2.06 1.95
- -----------------------------------------------------------------------------------------
Net investment income (loss) (.61)% (.41) .12 (.94)
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.28% 2.24 2.19 2.35
- -----------------------------------------------------------------------------------------
Net investment loss (.61)% (.41) (.01) (1.34)
- -----------------------------------------------------------------------------------------
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $980,411 1,263,144 273,222 31,606 6,931
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 50% 83 23 86 140
- -----------------------------------------------------------------------------------------------
</TABLE>
Notes: Per share data for the year ended December 31, 1996 were determined based
on average shares outstanding. Total return does not reflect the effect of any
sales charges.
Scudder Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the period ended
December 31, 1996. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
64 Financial Highlights
<PAGE>
Kemper U.S. Growth and Income Fund
<TABLE>
<CAPTION>
For the period from January 30, 1998
(commencement of operations)
to September 30, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $9.50 9.50 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .03 .03
- --------------------------------------------------------------------------------------
Net realized and unrealized loss (.38) (.38) (.38)
- --------------------------------------------------------------------------------------
Total from investment operations (.31) (.35) (.35)
- --------------------------------------------------------------------------------------
Less distributions from net investment income .07 .03 .03
- --------------------------------------------------------------------------------------
Net asset value, end of period $9.12 9.12 9.12
- --------------------------------------------------------------------------------------
Total return (not annualized) (3.36)% (3.72) (3.71)
- --------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the Fund 1.36% 2.01 1.99
- --------------------------------------------------------------------------------------
Net investment income 1.56% .91 .93
- --------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 2.59% 3.49 3.25
- --------------------------------------------------------------------------------------
Net investment income (loss) .33% (.57) (.33)
- --------------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $18,563,000
- --------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 93%
- --------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 65
<PAGE>
Kemper Value Fund
<TABLE>
<CAPTION>
For the period April 16, 1998
(commencement of sale of
Class A , B and C shares) to August 31, 1998
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $25.42 $25.42 $25.42
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .00 .01
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (4.30) (4.31) (4.30)
- ----------------------------------------------------------------------------------------
Total from investment operations (4.23) (4.31) (4.29)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $21.19 $21.11 $21.13
- ----------------------------------------------------------------------------------------
Total return (%) (b) (16.64)** (16.96)** (16.88)**
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
Net assets, end of period ($ millions) 28 18 3
- ----------------------------------------------------------------------------------------
Ratio of operating expenses, net to average
daily net assets (%) 1.34* 2.12* 2.11*
- ----------------------------------------------------------------------------------------
Ratio of net investment income to
average daily net assets (%) .86* .03* .08*
- ----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47.0 47.0 47.0
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
66 Financial Highlights
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling Kemper at the toll-free
telephone number listed below. The Statement of Additional Information contains
more information on fund investments and operations. The Shareholder Services
Guide contains more information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the funds'
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By Phone Call Kemper at: 1-800-621-1048
- --------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
In Person Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
- --------------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
Kemper Contrarian Fund 811-5385
Kemper-Dreman Financial Services Fund 811-08599
Kemper-Dreman High Return Equity Fund 811-5385
Kemper Small Cap Relative Value Fund 811-08393
Kemper Small Cap Value Fund 811-5385
Kemper U.S. Growth and Income Fund 811-08393
Kemper Value Fund 811-1444
[PRINTED WITH SOY INK LOGO] [RECYCLE LOGO] Printed on recycled paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
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
combined Statement of Additional Information for each of the funds (the "Funds")
listed above. It should be read in conjunction with the combined prospectus of
the Funds dated February 1, 1999. 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
INVESTMENT RESTRICTIONS 2
INVESTMENT POLICIES AND TECHNIQUES 3
PORTFOLIO TRANSACTIONS 7
INVESTMENT MANAGER AND UNDERWRITER 9
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES 18
NET ASSET VALUE 30
DIVIDENDS AND TAXES 31
PERFORMANCE 33
OFFICERS AND BOARD MEMBERS 42
SHAREHOLDER RIGHTS 48
The financial statements appearing in each Funds' 1998 Annual Reports to
Shareholders are incorporated herein by reference. The Annual Reports for each
of those Funds accompanies this document.
DRE-13 (5/98) printed on recycled paper
<PAGE>
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 (the "1940 Act"), 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.
Each Fund has elected to be classified as a diversified series of an open-end
investment company.
A Fund may not, as a fundamental policy:
1. Borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
2. Issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
3. Concentrate its investments in a particular industry, as that term is used
in the 1940 Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
4. Make loans except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investment secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate as acquired as a result of the
Fund's ownership of securities.
6. Purchase physical commodities or contracts relating to physical
commodities.
7. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio 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. Each Fund has
adopted the following non-fundamental restrictions, which may be changed by the
Board without shareholder approval.
The Funds (other than Small Cap Relative Value Fund) 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 1940 Act.
3. 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.
4. Mortgage, pledge, or hypothecate any assets except in connection with
borrowings 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. Optioned securities are not considered to be pledged for purposes
of this limitation.
5. 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.
2
<PAGE>
6. Invest in oil, gas or mineral exploration or development programs
The Small Cap Relative Value Fund 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 1940 Act.
3. Invest more than 15% of the value of its net assets in illiquid
securities.
4. Mortgage, pledge or hypothecate any assets except in connection with
borrowings or in connection with options and futures contracts.
5. 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.
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.
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.
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
3
<PAGE>
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 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") as well as through the purchase of securities of foreign companies that
are publicly traded in the United States. 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.
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
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.
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 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
4
<PAGE>
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
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. 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 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
5
<PAGE>
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 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.
6
<PAGE>
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
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.
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. ("the
Adviser").
The primary objective of the Adviser 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. The Adviser 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
7
<PAGE>
commissions paid by others. The Adviser 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 the Adviser'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.
The Adviser 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, the Adviser may give consideration to those firms that have sold or
are selling shares of a Fund managed by the Adviser.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the 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 the Adviser, it is the opinion of
the Adviser that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Funds and not all such information is used by the Adviser
in connection with the Funds. Conversely, such information provided to The
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.
Each Fund's Board members 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 The Adviser 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 members 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
8
<PAGE>
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, 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
The Adviser 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, 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 The Adviser 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. The table below also shows total
brokerage commission paid by Small Cap Relative Value Fund from [May 6, 1998
(commencement of operations)] to September 30, 1998.
<TABLE>
<CAPTION>
[TO BE UPDATED] Allocated to firms Based
Fund Fiscal 1998 on Research in Fiscal 1998 Fiscal 1997*6 Fiscal 1996
- ---- ----------- ----------------------- ------------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund $ % $243,000 $157,000
High Return Equity Fund $ % $1,432,000 $489,000
Small Cap Value Fund $ % $1,339,000 $365,000
Small Cap Relative Value Fund $ %
</TABLE>
* January 1, 1997 - November 30, 1997.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc., 345 Park Avenue, New York,
New York, is the investment manager of each Fund. The Adviser is approximately
70% owned by Zurich Financial Services, Inc., a newly formed global insurance
and financial services company. Pursuant to an investment management agreement,
Scudder Kemper Investments, Inc. 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 the Adviser 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.
9
<PAGE>
The investment management agreement provides that the Adviser 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
the Adviser 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.
Responsibility for overall management of each Fund rests with its Board members
and officers. Professional investment supervision is provided by The Adviser.
The investment management agreements provide that The Adviser shall act as each
Fund's investment adviser, manage its investments and provide it with various
services and facilities. At December 31, 1997, pursuant to the terms of an
agreement, Scudder, Stevens & Clark, Inc. ("Scudder") and Zurich Insurance
Company ("Zurich") formed a new global organization by combining Scudder with
Zurich Kemper Investments, Inc., a former subsidiary of Zurich and former
investment manager of the Funds, and Scudder changed it name to The Adviser
Investments, Inc. As a result of the transaction, Zurich owned approximately 70%
of the Adviser, with the balance owned by the Adviser's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in The Adviser) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services, Inc. By way of a dual holding
company structure, former Zurich shareholder initially owned approximately 57%
of Zurich Financial Services, Inc., with the balance initially owned by former
B.A.T shareholders.
Upon consummation of this transaction, the Funds' existing investment management
agreements with The Adviser was deemed to have been assigned and, therefore,
terminated. The Board has approved new investment management agreements with The
Adviser, which are substantially identical to the current investment management
agreements, except for the dates of execution and termination. This agreements
became effective upon the termination of the then current investment management
agreements and will be submitted for shareholder approval at a special meeting
currently scheduled to conclude in December 1998.
The current investment management fee rates are payable monthly at the annual
rates shown below:
<TABLE>
<CAPTION>
Small Cap
High Return Equity Small Cap Relative Value
Average Daily Net Assets Contrarian Fund Fund Value Fund Fund
------------------------ --------------- ---- ---------- ----
<S> <C> <C> <C> <C>
$0 - $250 million 0.75% 0.75% 0.75% 0.75%
$250 million - $1 billion 0.72 0.72 0.72 0.72
$1 billion - $2.5 billion 0.70 0.70 0.70 0.70
$2.5 billion - $5 billion 0.68 0.68 0.68 0.68
$5 billion - $7.5 billion 0.65 0.65 0.65 0.65
$7.5 billion - $10 billion 0.64 0.64 0.64 0.64
$10 billion - $12.5 billion 0.63 0.63 0.63 0.63
Over $12.5 billion 0.62 0.62 0.62 0.62
</TABLE>
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 0.75% thereafter.
10
<PAGE>
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; and by Small Cap Relative Value Fund for the period of May 6,
1998 to September 30, 1998.
<TABLE>
<CAPTION>
Fund Fiscal 1998* Fiscal 1997* Fiscal 1996
- ---- ------------ ------------ -----------
<S> <C> <C> <C>
Contrarian Fund $1,660,000 $903,000 $400,000
High Return Equity Fund $29,284,000 $12,084,000 $2,430,000
Small Cap Value Fund $8,166,000 $5,160,000 $ 943,000
Small Cap Relative Value Fund** $3,000 n/a n/a
</TABLE>
* January 1, 1997 - November 30, 1997.
**May 6, 1998 - September 30, 1998
[The Adviser has agreed to waive temporarily a portion of its management fee for
the Small Cap Relative Value Fund to the extent described 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 The
Adviser. DVM was formed in April 1997 and has served as sub-adviser for the Fund
since August 1997.
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 The Adviser may, from time to
time, reasonably request.
The Adviser pays DVM for its services a sub-advisory fee, payable monthly, at
the annual rate of 0.24% of the first $250 million of the Fund's average daily
net assets, 0.23% of the average daily net assets between $250 million and $1
billion, 0.224% of average daily net assets between $1 billion and $2.5 billion,
0.218% of average daily net assets between $2.5 billion and $5 billion, 0.208%
of average daily net assets between $5 billion and $7.5 billion, 0.205% of
average daily net assets between $7.5 billion and $10 billion, 0.202% of average
daily net assets between $10 billion and $12.5 billion and 0.198% of the Fund's
average daily net assets over $12 billion. In addition, The Adviser 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.
The table below shows the total sub-advisory fees paid by the High Return Equity
Fund for the last three fiscal periods.
Fund Fiscal 1998* Fiscal 1997* Fiscal 1996
- ---- ------------ ------------ -----------
High Return Equity $ $ $
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 the Fund. The Sub- Advisory Agreement may be
terminated at any time upon 60 days' notice by The Adviser or by the Board 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 The Adviser.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corp. ("SFAC"), a subsidiary of
Scudder Kemper Investmnets, Inc., 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
11
<PAGE>
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 0.025% of the first $150 million of average daily net assets,
0.0075% of the next $850 million of such assets and 0.0045% of such assets in
excess of $1 billion, plus holding and transaction charges for this service. For
the fiscal year ended 1998, Small Cap Relative Value Fund did not pay any fees
to SFAC.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of The
Adviser, and a wholly-owned subsidiary of The Adviser, 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.
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 1940 Act. 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. 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. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the periods noted.
12
<PAGE>
<TABLE>
<CAPTION>
Commissions Retained by Commissions Underwriter Commissions Paid to
Fund Fiscal Year Underwriter Paid to All Firms Affiliated Firms
- ---- ----------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund 1998 $52,000 581,000$ $5,000
1997* $ 90,000 $ 576,000 $--
1996 $ 65,000 $ 462,000 $ 41,000
High Return Equity Fund 1998 $2,099,000 $17,133,000 $228,000
1997* $3,113,000 $13,161,000 $221,000
1996 $ 601,000 $ 4,531,000 $356,000
Small Cap Value Fund 1998 $233,000 $2,515,000 $57000
1997* $ 584,000 $ 4,828,000 $ 68,000
1996 $ 231,000 $ 1,734,000 $114,000
Small Cap Relative Value
Fund** 1998 $1,000 $3,000 $0
</TABLE>
* Amounts paid from January 1, 1997 through November 30, 1997.
** For the period of [May 6, 1998 (commencement of operations) to September
30, 1998.
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% 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 under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% 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 0.75% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or 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. The Funds have adopted plans under Rule 12b-1 that provides for
fees payable as an expense of the Class B shares and Class C shares that are
used by KDI to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges. 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.
13
<PAGE>
<TABLE>
<CAPTION>
Distribution Expenses Distribution Fees Paid by Contingent Deferred Sales
Incurred By Underwriter Fund to Underwriter Charge Paid to Underwriter
----------------------- ------------------- --------------------------
Fund Class B Class C Class B Class C Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 648,000 70,000 117,000 3,000
High Return
Equity Fund 13,773,000 2,588,000 2,717,000 10,500
Small Cap Value
Fund 3,293,000 803,000 857,000 40,000
Small Cap
Relative Value
Fund* 0 0 0 0
</TABLE>
*after expense waiver
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 may or
may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
Expenses of the 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.
14
<PAGE>
<TABLE>
<CAPTION>
Total Distribution
Distribution Contingent Distribution Fees Fees Paid by
Fees Paid by Deferred Paid by Underwriter
Fund Class Fiscal Fund to Sales Charge Underwriter to to Affiliated
B Shares Year Underwriter to Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $648,000 127,000 903,000 --
1997* $ 353,000 62,000 989,000 --
1996 $95,000*** 15,000 584,000 15,000
High Return 1998 $14,036,000 2,857,000 34,050,000 --
Equity Fund 1997* $5,477,000 817,000 29,872,000 --
1996 $750,000*** 127,000 7,215,000 126,000
Small Cap 1998 $3,293,000 999,000 4,888,000 --
Value Fund 1997* $1,716,000 221,000 9,907,000 --
1996 $191,000*** 52,000 2,299,000 47,000
Small Cap** 1998 $1,000 46,000 --
Relative Value
Fund
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
-----------------------------------------------
Advertising Marketing Misc.
Fund Class Fiscal and Prospectus and Sales Operating Interest
B Shares Year Literature Printing Expenses Expenses Expense
- -------- ---- ---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1998 119,000 12,000 231,000 54,000 286,000
1997* 96,000 7,000 287,000 7,000 166,000
1996 148,000 9,000 293,000 57,000 74,000
High Return 1998 4,192,000 425,000 8,215,000 1,224,000 6,398,000
Equity Fund 1997* 2,812,000 210,000 7,887,000 330,000 2,538,000
1996 1,186,000 75,000 2,455,000 468,000 422,000
Small Cap 1998 969,000 94,000 1,736,000 80,000 1,730,000
Value Fund 1997* 867,000 65,000 2,409,000 78,000 810,000
1996 391,000 25,000 813,000 134,000 156,000
Small Cap** 1998 -- -- 1,000 1,000 1,000
Relative Value
Fund
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Total Distribution
Distribution Contingent Distribution Fees Fees Paid by
Fees Paid by Deferred Paid by Underwriter
Fund Class Fiscal Fund to Sales Charge Underwriter to to Affiliated
C Shares Year Underwriter to Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $70,000 3,000 73,000 --
1997* $ 29,000 2,000 38,000 --
1996 $ 2,000*** 2,000 15,000 --
High Return 1998 $2,566,000 133,000 2,886,000 --
Equity Fund 1997 $901,000 31,000 1,417,000 --
1996 $ 96,000*** 3,000 281,000 --
Small Cap 1998 $803,000 63,000 984,000 --
Value Fund 1997* $392,000 22,000 677,000 --
1996 $ 48,000 1,000 130,000 --
Small Cap 1998 $-- -- -- --
Relative Value
Fund**
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
-----------------------------------------------
Marketing Misc.
Fund Class Fiscal Advertising Prospectus and Sales Operating Interest
C Shares Year and Literature Printing Expenses Expenses Expense
- -------- ---- -------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1998 22,000 2,000 44,000 16,000 17,000
1997* 12,000 1,000 35,000 9,000 9,000
1996 20,000 1,000 41,000 6,000 3,000
High Return 1998 956,000 99,000 1,915,000 292,000 428,000
Equity Fund 1997 565,000 42,000 1,309,000 32,000 150,000
1996 202,000 13,000 237,000 55,000 22,000
Small Cap 1998 296,000 29,000 540,000 99,000 185,000
Value Fund 1997* 248,000 19,000 537,000 10,000 69,000
1996 103,000 7,000 136,000 35,000 12,000
Small Cap 1998 -- -- 1,000 -- --
Relative Value
Fund**
</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 [May 6, 1998 (commencement of operations)] to September
30, 1998.
*** Amounts shown are after expense waiver.
16
<PAGE>
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 0.25% 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 0.25% 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 0.25% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms a service fee at a rate of up to
0.25% (calculated monthly and 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.
The following information concerns the administrative services fee paid by each
Fund for the fiscal years ended 1998, 1997, and 1996 (except the Small Cap
Relative Value Fund which commenced operations on May 6, 1998).
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Service Fees Paid by
Fiscal Service Fees Paid by Administrator to Affiliated
Fund Year Class A Class B Class C Administrator to Firms Firms
- ---- ---- ------- ------- ------- ---------------------- -----
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $263,000 214,000 23,000 497,000 0
1997* $146,000 111,000 10,000 284,000 --
1996 $32,000*** 42,000 3,000 114,000 2,000
High Return Equity 1998 $4,407,000 4,610,000 872,000 10,206,000 21,000
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
Small Cap Value Fund 1998 $1,384,000 1,099,000 266,00 2,586,000 5,000
1997* $936,000 577,000 130,000 2,042,000 5,000
1996 $42,000*** 109,000 19,000 351,000 6,000
Small Cap Relative 1998 $0 *** 0*** 2,000 0
Value Fund**
</TABLE>
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from [May 6, 1998 (commencement of operations)] to September
30, 1998.
*** Amounts shown are after expense waiver.
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
17
<PAGE>
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
the Adviser 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 The Adviser, 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 fiscal year 1998 (except for the Small Cap Relative
Value Fund which commenced operations on or about May 6, 1998).
Fund Fees IFTC Paid to KSvC
- ---- ----------------------
Contrarian Fund $766,000
High Return Equity Fund $9,561,000
Small Cap Value Fund $4,007,000
Small Cap Relative Value Fund $2,000
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, REPURCHASE AND REDEMPTION 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
18
<PAGE>
differences are summarized in the table below. See, also, "Summary of Expenses."
Each class has distinct advantages and disadvantages for different investors,
and investors may choose the class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
Annual
12b-1 Fees
(as a % of
average daily
Sales Charge net assets) Other Information
------------ ----------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales None Initial sales charge waived
charge of 5.75% of the or reduced for certain
public offering price purchases
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; issuance
declines to zero after
six years
Class C Contingent deferred sales 0.75% No conversion feature
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.
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
Percentage
As a As a Percentage of
Percentage of of Net Offering
Amount of Purchase Offering Price Asset Value* Price
------------------ -------------- ------------ -----
<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.
19
<PAGE>
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 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-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement dated August 31, 1995, issued in connection with
the aforementioned court proceeding. For sales of Fund shares at 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 attributable to shares purchased under this privilege in the
month after the month of purchase and the concession continues until terminated
by KDI. The privilege of purchasing Class A shares of the Fund at net asset
value under this privilege is not available if another net asset value purchase
privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
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
20
<PAGE>
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 pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .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 amount
of the
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<PAGE>
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."
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. 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.
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 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 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.
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
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<PAGE>
and a stock power must be endorsed by the account holder with signatures
guaranteed by a commercial bank, trust company, savings and loan association,
federal savings bank, member firm of a national securities exchange or other
eligible financial institution. The redemption request and stock power must be
signed exactly as the account is registered including any special capacity of
the registered owner. Additional documentation may be requested, and a signature
guarantee is normally required, from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under the Uniform Transfers to
Minors Act), executors, administrators, trustees or guardians.
The redemption price for shares of a 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.
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
23
<PAGE>
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 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
The Adviser deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The 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 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.
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Contingent
Deferred
Sales
Year of Redemption After Purchase Charge
- --------------------------------- ------
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in 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
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
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<PAGE>
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 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 determines that a material adverse effect would be experienced by
the remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board 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 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.
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<PAGE>
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.
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.
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.
27
<PAGE>
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 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
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<PAGE>
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.
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:
o 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.
o 403(b)(7) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. 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.
ADDITIONAL TRANSACTION INFORMATION
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,
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<PAGE>
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: (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.
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.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
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open for trading. The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the 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
[TO BE UPDATED]
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 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.
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.
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TAXES. The 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 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.
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PERFORMANCE
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 SEC. 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 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.
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 Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(Infinity) 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@ or Money Market Insight@,
reporting services on money market funds.
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<PAGE>
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.
The figures below show performance information for various periods for each
Fund. 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.
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CONTRARIAN FUND -- NOVEMBER 30, 1998
AVERAGE
ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) 14.61% 21.69 21.99
Ten Years 15.08 N/A N/A
Five Years 19.22 N/A N/A
Three Years 21.55 20.46 20.35
One Year 12.63 15.32 18.25
(+) Since March 18, 1988 for Class A shares. Since September 11, 1995 for
Class B and Class C shares.
N/A -Not Available.
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HIGH RETURN EQUITY FUND -- NOVEMBER 30, 1998
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) 18.41% 25.01 25.45
Ten Years 18.60 N/A N/A
Five Years 21.27 N/A N/A
Three Years 22.57 23.44 23.93
One Year 7.70 10.22 13.32
(+) Since March 18, 1988 for class A shares. Since September 11, 1995 for
Class B and Class C shares.
N/A - Not Available.
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SMALL CAP VALUE FUND -- NOVEMBER 30, 1998
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) 12.60 6.32 6.98
Five Years 13.06 N/A N/A
Three Years 8.93 9.53 10.27
One Year -20.54 -18.88 -16.37
(+) Since May 22, 1992 for Class A shares. Since September 11, 1995 for Class
B and Class C shares.
N/A - Not Available.
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SMALL CAP RELATIVE VALUE FUND -- SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Fund (+) -24.90% -23.81 -21.32
One Year N/A N/A N/A
(+) Since May 6, 1998 for Class A, B, and C shares.
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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.
39
<PAGE>
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.
40
<PAGE>
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 category includes funds with a
variety of objectives, policies and market and credit risks that should be
considered in reviewing these rankings.
Contrarian Fund (Period ended 11/30/98) Growth & Income Funds
- --------------------------------------- ---------------------
Ten Years #65 of 146 funds
Five Years #45 of 298 funds
Three Years #170 of 459 funds
One Year #153 of 744 funds
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.
High Return Equity Fund (Period ended 11/30/98) Equity Income Funds
- ----------------------------------------------- -------------------
Ten Years #1 of 41 funds
Five Years #1 of 84 funds
Three Years #1 of 141 funds
One Year #54 of 218 funds
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.
Small Cap Value Fund (Period ended 11/30/98) Small Company Growth Funds
- -------------------------------------------- --------------------------
One Year #549 of 620 funds
Three Years #162 of 352 funds
Five Years #57 of 198 funds
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.
41
<PAGE>
Small Cap Relative Value Fund Small Company Growth Funds
- ----------------------------- --------------------------
One Year N/A
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. (the "Adviser") 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 Investments, Inc.
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.
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 Northern Institutional Funds;
formerly, Trustee of the Pilot Funds.
THOMAS W. LITTAUER (4/26/55), Board Member*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
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.
42
<PAGE>
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.
BRENDA LYONS, (2/21/63) Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
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:
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.
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:
KATHRYN L. QUIRK (12/3/52), Trustee*, see above.
PHILIP S. FORTUNA (11/30/57), Vice President*, 101 California Street, Suite
4100, San Francisco, California; Managing Director, Scudder Kemper.
43
<PAGE>
LORI J. ENSINGER (12/12/61), Vice President*, 345 Park Avenue, New York, New
York; Senior Vice President, Scudder Kemper.
* "Interested persons" as defined in the 1940 Act.
TO BE UPDATED: 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 1998 calendar year.
[TO BE UPDATED]
<TABLE>
<CAPTION>
Aggregate Compensation Aggregate Compensation Total Compensation from Kemper Fund
Name of Board Members From KVS from the Trust Complex Paid to Board Members (2)
- --------------------- -------- -------------- ---------------------------------
<S> <C> <C> <C>
James E. Akins $ $ $
Arthur R. Gottschalk(1) $ $ $
Frederick T. Kelsey $ $ $
Fred B. Renwick $ $ $
John B. Tingleff $ $ $
John G. Weithers $ $ $
</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, The Adviser owned all of the
outstanding shares of the Small Cap Relative Value Fund.
Principal Holders of Securities [TO BE UPDATED]
As of December 31, 1998 the following owned of record more than 5% of the
outstanding stock of the funds, as set forth below.
Kemper Contrarian Fund
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 A 5.65
Everen Securities, Inc.
111 E Kilbourn Ave
Milwaukee, WI 53202 B 5.40
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 9.82
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 5.97
44
<PAGE>
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 C 5.06
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 C 5.41
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 C 14.03
Kemper-Dreman High Return Equity Fund
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 A 10.49
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 A 6.94
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 11.92
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 8.45
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 B 6.14
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 C 8.32
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 C 9.07
45
<PAGE>
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 C 16.89
Kemper Small Cap Value Fund
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 A 6.49
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 A 8.43
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 12.36
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 8.49
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 B 9.86
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 C 8.23
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 C 7.77
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 C 26.02
46
<PAGE>
Kemper Small Cap Relative Value Fund
Name and Address Class Percentage
- ---------------- ----- ----------
SSC Investment Corp.
345 Park Ave
New York, NY 10154 A 20.90
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 A 7.98
Arthur L Novom & Harriett Novom TTEE
30716 Rue De La Pierre
Rncho Pls Vrd, Ca 90275 A 9.35
Burton A. Liebross TTEE
Valley Internal Medicine 401K
15215 Sutton St
Sherman Oaks, Ca 91403 A 12.05
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 9.78
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 45.19
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 C 14.78
Michael S Kirwin
10 Walnut DR
Howell, NJ 07731 C 8.05
Investors Fiduciary Tr Co Cust
3800 Atlantic Ave Apt 904
Virginia Bch, VA 23451 C 5.25
Louise D. Formyduval & Marguerite Fur &
Alice F Walker JTWOS
PO Box 487
Onley, VA 23418 C 5.64
Terry E Sanchez & Donna K. Sanchez
JTWROS
1852 Samarkand PL
Glendale, CA 91208 C 18.00
47
<PAGE>
SHAREHOLDER RIGHTS
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 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 The Adviser and its affiliates; and (b) the following investment advisory
clients of The Adviser 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 Fund's activities are supervised by the Trust's Board of Trustees.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
48
<PAGE>
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
The 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
The Adviser 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.
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 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 1940 Act. 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 1940 Act, 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
49
<PAGE>
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.
REPORT OF INDEPENDENT AUDITORS
[TO BE UPDATED]
50
<PAGE>
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
KUSGIF-13 (Recycled Logo) printed on recycled paper
Kemper
U.S. Growth and Income Fund
February 1, 1999
KEMPER FUNDS LOGO
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
KEMPER U.S. GROWTH AND INCOME FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Kemper U.S. Growth and Income Fund (the
"Fund"), a diversified series of Kemper Securities Trust (the "Trust"), an
open-end management investment company. It should be read in conjunction with
the prospectus of the Fund dated February 1, 1999 . The prospectus may be
obtained without charge from the Fund at the address or telephone number on this
cover or the firm from which this Statement of Additional Information was
received and is also available along with other related materials on the SEC's
Internet web site (http://www.sec.gov).
---------------
TABLE OF CONTENTS
Page
----
Investment Restrictions............. ____
Investment Policies and Techniques.. ____
Portfolio Transactions.............. ____
Investment Manager and Underwriter.. ____
Purchase, Repurchase and Redemption
of Shares........................... ____
Net Asset Value..................... ____
Dividends, Distributions and Taxes.. ____
Performance......................... ____
Officers and Trustees............... ____
Shareholder Rights.................. ____
Scudder Kemper Investments, Inc. (the "Advisor") serves as the Fund's investment
manager. The financial statements appearing in the Fund's 1998 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
accompanies this Statement of Additional Information.
KEUF-13 4/98 (RECYCLED LOGO) printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a "majority" of its outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's shares present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the Fund's outstanding shares.
The Fund may not, as a fundamental policy:
1. borrow money, except as permitted under the 1940 Act and as interpreted or
modified by regulatory authority having jurisdiction from time to time;
2. issue senior securities, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time;
3. purchase physical commodities or contracts relating to physical
commodities;
4. engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities;
5. purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities;
6. make loans except as permitted under the 1940 Act and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
7. concentrate its investments in a particular industry, as that term is used
in the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation. [TO BE
UPDATED: The Fund did not borrow money as permitted by investment restriction
number 4 in the latest fiscal year and it has no present intention of borrowing
during the current year.] The Fund has adopted the following non-fundamental
restrictions, which may be changed by the Board of Trustees without shareholder
approval. The Fund may not:
i. borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;
ii. enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;
iii. purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;
iv. purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
v. enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such
<PAGE>
options on futures contracts does not exceed 5% of the fair market
value of the Fund's total assets; provided that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
vi. purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and
vii. lend portfolio securities in an amount greater than 30% of its total
assets.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The objectives of Kemper U.S. Growth and Income Fund are to provide
long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks and securities convertible
into common stocks of U.S. companies which offer the prospect for growth of
earnings while paying current dividends. The Fund may engage in futures, options
and other derivative transactions ("Strategic Transactions and Derivatives") in
accordance with its investment objective and policies. The Fund intends to
engage in such transactions if it appears to the Advisor to be advantageous for
the Fund to do so, in order to pursue its investment objectives, to hedge
against the effects of fluctuating interest rates and to stabilize the value of
its assets, and not for speculation. The use of futures and options, and
possible benefits and attendant risks, are discussed below, along with
information concerning certain other investment policies and techniques.
From time to time, for temporary defensive purposes, when the Advisor feels such
a position is advisable in light of economic or market conditions, the Fund may
invest all or a portion of its assets in cash and cash equivalents. It is
impossible to accurately predict for how long such alternative strategies will
be utilized.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of such securities' conversion or exchange
features.
The convertible securities in which the Fund may invest include fixed-income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
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Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed-income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
LENDING OF PORTFOLIO SECURITIES. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions and are required to be secured
continuously by collateral in cash and liquid assets maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice. During the existence of a loan, the Fund
will continue to receive the equivalent of any distributions paid by the issuer
on the securities loaned and will also receive compensation based on investment
of the collateral. The risks in lending securities, as with other extensions of
secured credit, consist of a possible delay in recovery or even a loss of rights
in the collateral should the borrower of the securities fail financially. Loans
will only be made to firms deemed by the Advisor to be in good standing, and
will not be made unless, in the judgment of the Advisor, the consideration to be
earned from such loans would justify the risk. The value of the securities
loaned will not exceed 30% of the value of a Fund's total assets at the time any
loan is made.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Advisor to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a debt security ("Obligation") and the seller agrees,
at the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund, together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation, subject to the repurchase agreement,
and is, therefore, subject to the Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Advisor seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. Apart from the
risk of bankruptcy or insolvency proceedings, there is also the risk that the
seller may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
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deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in REITs. REITs are sometimes
informally characterized as equity REITs, mortgage REITs and hybrid REITs.
Investment in REITs may subject the Fund to risks associated with the direct
ownership of real estate, such as decreases in real estate values, overbuilding,
increased competition and other risks related to local or general economic
conditions, increases in operating costs and property taxes, changes in zoning
laws, casualty or condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental income. Equity REITs
generally experience these risks directly through fee or leasehold interests,
whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate. Changes in interest rates may also affect the value of the Fund's
investment in REITs. For instance, during periods of declining interest rates,
certain mortgage REITs may hold mortgages that the mortgagors elect to prepay,
which prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
ILLIQUID SECURITIES. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid securities. Disposing of illiquid securities may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Fund to sell them promptly at an acceptable price. The Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Advisor may at times
play a greater role in valuing these securities than in the case of illiquid
securities.
Generally speaking, restricted securities may be sold in the U.S. only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in the market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
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Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
STRATEGIC TRANSACTIONS AND DERIVATIVES. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
the fixed-income securities in the Fund's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Advisor's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its
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investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and
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performance mechanics, all the terms of an OTC option, including such terms as
method of settlement, term, exercise price, premium, guarantees and security,
are set by negotiation of the parties. The Fund will only sell OTC options that
are subject to a buy-back provision permitting the Fund to require the
Counterparty to sell the option back to the Fund at a formula price within seven
days. The Fund expects generally to enter into OTC options that have cash
settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Advisor must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO). The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, corporate debt securities,
equity securities (including convertible securities) and Eurodollar instruments
(whether or not it holds the above securities in its portfolio), and on
securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a
8
<PAGE>
daily basis as the mark to market value of the contract fluctuates. The purchase
of an option on financial futures involves payment of a premium for the option
without any further obligation on the part of the Fund. If the Fund exercises an
option on a futures contract it will be obligated to post initial margin (and
potential subsequent variation margin) for the resulting futures position just
as it would for any position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction but there can be no
assurance that the position can be offset prior to settlement at an advantageous
price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which the
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Advisor
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the
9
<PAGE>
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument. In
general, either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
required to be delivered, or, subject to any regulatory restrictions, an amount
of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, or with an election of either physical delivery or cash
settlement and the Fund will segregate an amount of assets equal to the full
value of the option. OTC options settling with physical delivery, or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund may also invest in Standard and Poor's Depository Receipts ("SPDRs")
and DIAMONDS. SPDRs and DIAMONDS should typically trade like a share of common
stock and provide investment results that generally correspond to the price and
yield performance of the component common stocks of the S&P 500 Index and Dow
Jones Industrial Average, respectively. There can be no assurance, however, that
this can be accomplished as it may not be possible for the SPDRs or DIAMONDS, as
applicable, portfolio to replicate the composition and relative weightings of
the securities of the respective indices. SPDRs and DIAMONDS are
10
<PAGE>
subject to the risks of an investment in a broadly based portfolio of
large-capitalization common stocks, including the risk that the general level of
stock prices may decline, thereby adversely affecting the value of such
investment. SPDRs and DIAMONDS are also subject to risks other than those
associated with an investment in such a broadly based portfolio in that the
selection of the stocks included in the SPDRs or DIAMONDS, as applicable,
portfolio may affect trading in SPDRs and DIAMONDS, as compared with trading in
a broadly based portfolio of common stocks. In addition, there can be no
assurance that that SPDRs and DIAMONDS will experience similar trading patterns
nor that an active trading market for DIAMONDS will develop.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage is supervised by the Advisor.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for the Fund is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Advisor seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. The Advisor
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research and market statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchases or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Advisor is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Advisor may place
orders with broker/dealers on the basis that the broker/dealer has or has not
sold shares of a Fund. 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.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor, the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements the Advisor's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than the Fund, and not all such information is used by
the Advisor in connection with the Fund. Conversely, such information provided
to the Advisor by broker/dealers through whom other clients of the Advisor
effect securities transactions may be useful to the Advisor in providing
services to the Fund.
The Trustees review from time to time whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable
The table below shows total brokerage commissions paid by the Fund for the
period of February 1, 1998 (commencement of operations) through September 30,
1998, and the percentage thereof that was allocated to firms based upon research
information provided.
11
<PAGE>
[TO BE UPDATED]
Allocated to Firms
Based on Research in
February 1, to February 1, to
Fund September 30 1998 September 30 1998
- ---- ----------------- -----------------
U.S. Growth and Income To Be Updated To Be Updated__%
INVESTMENT MANAGER AND UNDERWRITERINVESTMENT MANAGER. Scudder Kemper
Investments, Inc. (the "Advisor"), an investment counsel firm, 345 Park Avenue,
New York, New York, is the Fund's investment manager. This organization is one
of the most experienced investment management firms in the United States. It was
established as a partnership in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. The predecessor firm
reorganized from a partnership to a corporation on June 28, 1985. On June 26,
1997, the Advisor's predecessor Scudder, Stevens & Clark ("Scudder") entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which the
predecessor and Zurich agreed to form an alliance.
Pursuant to the investment management agreement, the Advisor acts as the Fund's
investment advisor, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services and permits any of its officers or employees to serve
without compensation as directors or officers of the Fund if elected to such
positions. The investment management agreement provides that the Fund shall pay
the charges and expenses of its operations, including the fees and expenses of
the trustees (except those who are affiliates of the Advisor), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records thereto, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the SEC while Kemper Distributors,
Inc. ("KDI"), as principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.
The Advisor maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Advisor utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Fund and for clients of the Advisor,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for the Fund and also for other clients
advised by the Advisor. Investment decisions for the Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to the Fund.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in the Advisor) and the financial services businesses of B.A.T Industries p.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services, Inc. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services, Inc., with the balance initially owned by former
B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment management
agreement with the Advisor was deemed to have been assigned and, therefore,
terminated. The Board approved a new investment management agreement with the
Advisor, which is substantially identical to the investment management agreement
dated January 30, 1998, except for the dates of execution and
12
<PAGE>
termination. This agreement became effective on September 7, 1998 and was
approved at a special shareholder meeting held on [December 15, 1998.]
The Agreement dated September 7, 1998 was approved by the Trustees on [August 6,
1998] and ratified on [September 15, 1998]. The Agreement will continue in
effect until September 30, 1999 and from year to year thereafter only if their
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Advisor or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' notice and
automatically terminates in the event of its assignment.
Under the Agreement, the Advisor provides the Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested, subject always to the provisions of the Trust's Declaration of Trust
and By-Laws, the 1940 Act and the Code and to the Fund's investment objectives,
policies and restrictions and subject, further, to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Advisor also advises and assists the officers of the Trust in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Fund.
The Advisor also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Advisor pays the compensation and expenses of all Trustees, officers and
executive employees of the Trust affiliated with the Advisor and makes
available, without expense to the Trust, the services of such Trustees, officers
and employees of the Advisor as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Trust's office space and facilities.
Under the Agreement the Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; the calculation of net asset value; taxes and
governmental fees; the fees and expenses of the transfer agent; the cost of
preparing stock certificates and any other expenses including clerical expenses
of issue, redemption or repurchase of shares; the expenses of and the fees for
registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Trust who are not affiliated with the
Advisor; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Trustees with respect
thereto.
The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
The Advisor receives an investment management fee for its services. The Fund
pays the Advisor an investment management fee, payable monthly, at the annual
rate of 0.60% for the first $250 million of average daily net assets, 0.57% of
such assets for the next $750 million, 0.55% of such assets for the next $1.5
billion and 0.53% of such assets in excess of $2.5 billion. The fee is graduated
so that increases in the Fund's net assets may result in a lower annual fee rate
and decreases in the Fund's net assets may result in a higher annual fee rate.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by
13
<PAGE>
the Advisor not to exceed 75% of the amount of the fee then accrued on the books
of the Fund and unpaid. All of the Fund's expenses are paid out of gross
investment income. The investment management fee paid by the Fund from January
30, 1998 (commencement of operations) to September 30, 1998 is $0 after a fee
waiver of $39,000 from the Advisor.
In reviewing the terms of the Agreement and in discussions with the Advisor
concerning such Agreement, the Trustees of the Trust who are not "interested
persons" of the Trust have been represented by Vedder, Price, Kaufman &
Kammholz, as independent counsel at the Fund's expense.
The Agreement provides that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the Trust
as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Trust.
Employees of the Advisor and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Advisor's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, an affiliate of the Advisor, is the
principal underwriter and distributor for the shares of the Fund and acts as
agent of the Fund in the continuous offering of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs. KDI bears the cost of
registering or qualifying and maintaining the qualification of Fund shares for
sale and the Fund bears the expense of registering its shares with the SEC. KDI
may enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Trust, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The distribution agreement automatically terminates in the event of
its assignment and may be terminated for a class at any time without penalty by
the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect to
a class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the distribution agreement, or a "majority of
the outstanding voting securities" of the class of the Fund, as defined under
the 1940 Act. The distribution agreement may not be amended for a class to
increase the fee to be paid by the Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
distribution agreement. The provisions concerning the continuation, amendment
and termination of the distribution agreement are on a class by class basis.
Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services
14
<PAGE>
firms. As indicated under "Purchase of Shares," KDI retains the sales charge
upon the purchase of Class A shares and pays out a portion of this sales charge
or allows concessions or discounts to firms for the sale of Class A Fund shares.
The following information concerns the underwriting commissions paid in
connection with the distribution of the Fund's Class A shares for the fiscal
years noted.
<TABLE>
<CAPTION>
Commissions Commissions KDI Commissions Paid to KDI
Class A Shares Fiscal Year Retained by KDI Paid to All Firms Affiliated Firms
- -------------- ----------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
U.S. Growth and Income January 30- $5,000 292,000 0
September 30, 1998
</TABLE>
Class B Shares. For its services under the Class B distribution plan, KDI
receives a fee from the Fund under the Rule 12b-1 Plan, payable monthly, at an
annual rate of 0.75% of average daily net assets of the Fund attributable to its
Class B shares. This fee is accrued daily as an expense of Class B shares. KDI
also receives any contingent deferred sales charges received on redemptions of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the Class C distribution plan, KDI
receives a fee from the Fund under the Rule 12b-1 Plan, payable monthly, at an
annual rate of 0.75% of average daily net assets of the Fund attributable to its
Class C shares. This fee is accrued daily as an expense of Class C shares. KDI
currently advances to firms the first year distribution fee at a rate of 0.75%
of the purchase price of such shares. For periods after the first year, KDI
currently intends to pay firms for sales of Class C shares a distribution fee,
payable quarterly, at an annual rate of 0.75% of net assets attributable to
Class C shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. KDI also receives any contingent deferred sales
charges received on redemptions of Class C shares. See "Redemption or Repurchase
of Shares--Contingent Deferred Sales Charge--Class C Shares."
Rule 12b-1 Plans. The Fund has adopted a plan under Rule 12b-1 that provides for
fees payable as an expense of the Class B shares and Class C shares that are
used by KDI to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges.
The table below shows amounts paid in connection with the Fund's Rule 12b-1 Plan
from February 1, 1998 (commencement of operations) to September 30, 1998:
<TABLE>
<CAPTION>
Distribution Distribution Contingent Deferred
Expenses Incurred Paid by Fund Sales Charges Paid
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>
U.S. Growth & Income 12,000* 6,000 2,000 0
</TABLE>
* After fee waiver.
If the Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to the
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
Expenses of the 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:
15
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
---------------------------------------
Contingent Total Distribution
Deferred Distribution Paid by
Distribution Sales Fees Paid KDI to KDI Advertising Marketing Misc.
Fiscal Fees Paid by Charges by KDI to Affiliated and Prospectus and Sales Operating Interest
Year Fund to KDI Paid to KDI Firms Firms Literature Printing Expenses Expenses Expenses
---- ----------- ----------- ----- ----- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B January $12,000 2,000 256,000 0 11,000 1,000 28,000 9,000 10,000
Shares 30,
to
September
30
1998
Class C January 6,000 0 8,000 0 4,000 -- 11,000 4,000 --
Shares 30,
to
September
30
1998
</TABLE>
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of each of the Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A shares, KDI pays each firm a service fee, payable quarterly, at an
annual rate of up to 0.25% of the net assets in Fund accounts that it maintains
and services attributable to Class A shares, commencing with the month after
investment. With respect to Class B and Class C shares, KDI currently advances
to firms the first-year service fee at a rate of up to 0.25% of the purchase
price of such shares. For periods after the first year, KDI currently intends to
pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid may include affiliates
of KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which there is a firm of record, as well as,
with respect to Class A shares, the date when shares representing such assets
were purchased. In addition, KDI may, from time to time, from its own resources
pay certain firms additional amounts for ongoing administrative services and
assistance provided to their customers and clients who are shareholders of the
Fund. The Board of Trustees of the Fund, in its discretion, may approve basing
the fee to KDI on all Fund assets in the future.
Certain trustees or officers of the Trust are also directors or officers of the
Advisor or KDI, as indicated under "Officers and Trustees."
The following information concerns the administrative services fee paid by the
Fund:
16
<PAGE>
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Total Service Fees Service Fees Paid by KDI
Fund Fiscal Year Class A Class B Class C Paid by KDI to Firms to KDI Affiliated Firms
- ---- ----------- ------- ------- ------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Growth and January 30 0* 0* 0* $21,000 0
Income to September
30, 1998
</TABLE>
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts, as custodian, has
custody of all securities and cash of the Fund. It attends to the collection of
principal and income, and payment for and collection of proceeds of securities
bought and sold by the Fund. Pursuant to an agency agreement with the Fund,
Kemper Service Company (the "Shareholder Servicing Agent"), a subsidiary of the
Advisor, serves as transfer agent and dividend-paying agent. Kemper Service
Company receives as transfer agent, and pays annual account fees of $6 per
account plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B shares only) and
out-of-pocket expense reimbursement. Kemper Service Company's fee is reduced by
certain earnings credits in favor of the Fund. Total fees to Kemper Service
Company for the period from January 30, 1998 to September 30, 1998 was $20,000.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, 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 an annual fee of __ of 1% of average daily net assets for its
services to the Funds. For the period January 30, 1998 to September 30, 1998 the
fund paid no fees to SFAC after a waiver of $25,000.
PURCHASE AND REDEMPTION OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first and
second year following purchase, and do not convert into another class. When
placing purchase orders, investors must specify whether the order is for Class
A, Class B or Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
---------------------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived
5.75% of the public offering price or reduced for certain
purchases
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A
charge of 4% of redemption shares six years after
proceeds, declines to zero after issuance
six years
Class C Contingent deferred sales charge of 0.75% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
17
<PAGE>
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
-----------------------------------------------------------
Allowed to
Dealers as a
As a Percentage As a Percentage Percentage of
of Offering Price of Net Asset Value* Offering Price
----------------- ------------------- --------------
<S> <C> <C> <C>
Amount of Purchase
Less than $50,000................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000...................... 4.50 4.71 4.00
$100,000 but less than $250,000..................... 3.50 3.63 3.00
$250,000 but less than $500,000..................... 2.60 2.67 2.25
$500,000 but less than $1 million................... 2.00 2.04 1.75
$1 million and over................................. 0.00** 0.00** ***
</TABLE>
- -------------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all of its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.
Class A shares of the Fund may be purchased at net asset value to the extent
that the amount invested represents the net proceeds from a redemption of shares
of a mutual fund for which the Advisor does not serve as investment manager and
KDI does not serve as Distributor ("non-Kemper Fund") provided that: (a) the
investor has previously paid either an initial sales charge in connection with
the purchase of the non-Kemper Fund shares redeemed or a contingent deferred
sales charge in connection with the redemption of the non-Kemper Fund shares,
and (b) the purchase of Fund shares is made within 90 days after the date of
such redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper Fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized. KDI may in its
discretion compensate firms for sales of Class A shares under this privilege at
a commission rate of 0.50% of the amount of Class A shares purchased.
18
<PAGE>
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in the Fund or other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non- qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district provided in each case
that such plan has not less than 200 eligible employees (the "Large Order NAV
Purchase Privilege"). Redemption within two years of shares purchased under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedules, KDI will consider the cumulative amount invested by the purchaser in
the Fund and other Kemper Funds listed under "Special Features--Class A
Shares--Combined Purchases," including purchases pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features referred to
above. The privilege of purchasing Class A shares of the Fund at net asset value
under the Large Order NAV Purchase Privilege is not available if another net
asset value purchase privilege is also applicable.
Class A shares of the Fund or any other Kemper Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may at its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of the Fund
at net asset value under this privilege is not available if another net asset
value purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families: (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Fund, Inc. ("KVF") on September 8,
1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by
exchange of KVF shares) since that date, for themselves or members of their
families, (d) any trust or pension, profit-sharing or other benefit plan for
only such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; (f) persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund Class A shares may purchase Fund Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase the Fund's Class A shares at net asset value
through reinvestment programs described in the prospectuses and statements of
19
<PAGE>
additional information of such trusts that have such programs. The Fund's Class
A shares may be sold at net asset value through certain investment advisors
registered under the 1940 Act and other financial services firms that adhere to
certain standards established by KDI, including a requirement that such shares
be sold for the benefit of their clients participating in an investment advisory
program under which such clients pay a fee to the investment 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 Fund. The Fund may also issue Class A
shares at net asset value in connection with the acquisition of the assets of or
merger or consolidation with another investment company, or to shareholders in
connection with the investment or reinvestment of income and capital gain
dividends.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. Class B shareholders of the Fund who originally
acquired their shares as Initial Shares of Kemper Portfolios, formerly known as
Kemper Investment Portfolios ("KIP"), hold them subject to the same conversion
period schedule as that of their KIP Portfolio. Class B shares originally
representing Initial Shares of a KIP Portfolio will automatically convert to
Class A shares of the Fund six years after issuance of the Initial Shares for
shares issued on or after February 1, 1991 and seven years after issuance of the
Initial Shares for shares issued before February 1, 1991. The purpose of the
conversion feature is to relieve holders of Class B shares from the distribution
services fee when they have been outstanding long enough for KDI to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
Purchase Of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
20
<PAGE>
Which Arrangement Is Better For You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Funds listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by KDI.
Orders for the purchase or redemption of shares of the Fund will be confirmed at
a price based on the net asset value of the Fund next determined after receipt
in good order by KDI of the order accompanied by payment. However, orders
received by dealers or other firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes;
21
<PAGE>
and may perform functions such as generation of confirmation statements and
disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services.
The Fund reserves the right to withdraw all or any part of the offering made by
this statement of additional information and to reject purchase orders for any
reason. Also, from time to time, the Fund may temporarily suspend the offering
of any class of its shares to new investors. During the period of such
suspension, persons who are already shareholders of such class of the Fund
normally are permitted to continue to purchase additional shares of such class
and to have dividends reinvested.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("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 the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced at the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the 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 of the 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 the Fund at any time for any reason.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the Fund with a tax identification
number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this statement of additional information.
Fund shares are sold at their public offering price, which is the net asset
value next determined after an order is received in proper form plus, with
respect to Class A shares, an initial sales charge. The minimum initial
investment for each class is $1,000 and the minimum subsequent investment is
$100 but such minimum amounts may be changed at any time. The Fund may waive the
minimum for purchases by trustees, directors, officers or employees of the Fund
or the Advisor and its affiliates. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described herein.
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 or Class C shares by certain classes of persons or
through certain types of transactions as described herein are provided because
of anticipated economies of scale in sales and sales-related efforts.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described herein.
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REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares") and the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge--Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge--Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of any fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without a signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may
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<PAGE>
not be used to redeem shares held in certificated form and may not be used if
the shareholder's account has had an address change within 30 days of the
redemption request. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
redemption privilege, although investors can still redeem by mail. The Fund
reserves the right to terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if the Fund or
the Advisor deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Fund is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a participant-
directed qualified retirement plan described in Code Section 403(b)(7) which is
not sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under the Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies KDI that the dealer waives the commission applicable
to such Large Order NAV Purchase.
Contingent Deferred Sales Charge--Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
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<PAGE>
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
--------------------------------- ------------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Code and (d) redemptions
representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper Fund IRA accounts); (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent; and (g) for redemption of shares by an employer
sponsored employee benefit plan that (i) offers funds in addition to Kemper
Funds (i.e., "multi-manager"), and (ii) whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
Contingent Deferred Sales Charge--General. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 in appreciation to a total of $12,000. If
the investor were then to redeem the entire $12,000 in share value, the
contingent deferred sales charge would be payable only with respect to $10,000
because neither the $1,000 of reinvested dividends nor the $1,000 of share
appreciation is subject to the charge. The charge would be at the rate of 3%
($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
January, 1998 will be eligible for the second year's charge if redeemed on or
after January 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.
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<PAGE>
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or any
other Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in the same class of shares of
the Fund or of other Kemper Funds. The amount of any contingent deferred sales
charge also will be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge schedule. Also, a holder of Class B shares who has redeemed shares may
reinvest up to the full amount redeemed, less any applicable contingent deferred
sales charge that may have been imposed upon the redemption of such shares, at
net asset value in Class A shares of the Fund or of the other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features--Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of Fund shares, the reinvestment in shares of the Fund may be subject
to the "wash sale" rules if made within 30 days of the redemption, resulting in
a postponement of the recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time.
Redemption In Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Trustees may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash.
SPECIAL FEATURES
Class A Shares--Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper U.S. Growth and Income Fund, Kemper Global Blue Chip
Fund, Kemper International Growth and Income Fund, Kemper Emerging Markets
Income Fund, Kemper Emerging Markets Growth Fund, Kemper Latin America Fund,
Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper
Small Capitalization Equity Fund, Kemper Income and Capital Preservation Fund,
Kemper Municipal Bond Fund, Kemper Diversified Income Fund, Kemper High Yield
Series, Kemper U.S. Government Securities Fund, Kemper International Fund,
Kemper State Tax-Free Income Series, Kemper Adjustable Rate U.S. Government
Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target Equity
Fund (series are subject to a limited offering period), Kemper Intermediate
Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund,
Kemper Short-Intermediate Government Fund, Kemper Value Fund, Inc., Kemper
Value+Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper
Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth Fund ("Kemper
Funds"). Except as noted below, there is no combined purchase credit for direct
purchases of shares of Kemper Money Funds, Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Funds" for purposes hereof. For purposes of the Combined Purchases feature
described above as well as for the Letter of Intent and Cumulative Discount
features described below, employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder Service
Agent may include: (a) Money Market Funds as "Kemper Funds," (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investments, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
Class A Shares--Letter Of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus or statement of additional
information, also apply to the aggregate amount of purchases of such Kemper
Funds listed above made by any purchaser within a 24-month period under a
written Letter of Intent ("Letter") provided by KDI. The Letter, which imposes
no obligation to purchase or sell additional Class A shares, provides for a
price adjustment depending upon the actual amount purchased
26
<PAGE>
within such period. The Letter provides that the first purchase following
execution of the Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended purchase normally will be
held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
of the Fund are included for this privilege.
Class A Shares--Cumulative Discount. The Fund's Class A shares also may be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of Fund shares being purchased the value of all Class A shares of the
above mentioned Kemper Funds (computed at the maximum offering price at the time
of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares--Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the offering period for such series as
described in the applicable prospectus or statement of additional information.
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investors Municipal Cash Fund and Investors Cash Trust are available on
exchange but only through a financial services firm having a services agreement
with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without any contingent deferred sales charge being
imposed at the time of exchange. For purposes of calculating the contingent
deferred sales charge that may be imposed upon the redemption of the Class B
shares received on exchange, retain the cost and purchase date of the shares
that were originally purchased and exchanged.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, the cost and purchase date of the shares that were
originally purchased and exchanged.
General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired through exchange from another Kemper Fund,
or from a Money Market Fund, may not be exchanged thereafter until they have
been owned for 15 days (the "15 Day Hold Policy"). For purposes of determining
whether the 15 Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all
27
<PAGE>
accounts under common control, direction or advice, including without
limitation, accounts administered by a financial services firm offering market
timing, asset allocation or similar services. The total value of shares being
exchanged must at least equal the minimum investment requirement of the Kemper
Fund into which they are being exchanged. Exchanges are made based on relative
dollar values of the shares involved in the exchange. There is no service fee
for an exchange; however, dealers or other firms may charge for their services
in effecting exchange transactions. Exchanges will be effected by redemption of
shares of the fund held and purchase of shares of the other fund. For federal
income tax purposes, any such exchange constitutes a sale upon which a gain or
loss may be realized, depending upon whether the value of the shares being
exchanged is more or less than the shareholder's adjusted cost basis of such
shares. Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other funds from dealers, other firms or KDI. Exchanges may
be accomplished by a written request to Kemper Service Company, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to implement the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Kemper Funds that are eligible for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and Investors Municipal Cash Fund is available for sale only in
certain states. Except as otherwise permitted by applicable regulations, 60
days' prior written notice of any termination or material change will be
provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
Express-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional Fund shares through
an automatic investment program. With the Bank Direct Deposit Purchase Plan,
investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
The Fund may immediately terminate a shareholder's Plan in the event that any
item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify this privilege at any time.
Payroll Direct Deposit And Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in their Fund account each payment period. A
shareholder may terminate participation in these programs by giving written
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notice to the shareholder's employer or government agency, as appropriate. (A
reasonable time to act is required.) The Fund is not responsible for the
efficiency of the employer or government agency making the payment or any
financial institutions transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares (and Class A shares purchased under the Large Order NAV Purchase
Privilege and Class C shares in the first year following the purchase) may be
redeemed under a systematic withdrawal plan is 10% of the net asset value of the
account. Any income and capital gain dividends will be automatically reinvested
at net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan ordinarily will be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemption
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan For Employees of Small
Employers ("SIMPLE") IRA accounts and Simplified Employee Pension Plan
("SEP") IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Trustees may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.
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NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the Advisor 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 Trust's Valuation Committee of the Trust's Board of
Trustee's, the value of a portfolio asset as determined in accordance with these
procedures does not represent the fair market value of the portfolio asset, the
value of the portfolio asset is taken to be an amount which, in the opinion of
the Valuation Committee, represents fair market value on the basis of all
available information. The value of other portfolio holdings owned by the Fund
is determined in a manner which, in the discretion of the Valuation Committee,
most fairly reflects the fair market value of the property on the valuation
date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The Fund intends to distribute investment company taxable income, exclusive of
net short-term capital gains in excess of net long-term capital losses, in
March, June, September and December each year. The Fund intends to distribute
net realized capital gains
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after utilization of capital loss carryforwards, if any, in December to prevent
application of a federal excise tax. An additional distribution may be made at a
later date, if necessary. Additional distributions, including distributions of
net short-term capital gains in excess of net long-term capital losses, may be
made, if necessary.
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C shares than for Class A shares primarily as a result of
the distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same proportion for
each class.
Income and capital gains dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional Fund shares of the same class at net
asset value except that, upon written request to the Shareholder Service Agent,
a shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
Fund shares of the same class. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of the Fund invested
without sales charge in shares of the same class of another Kemper Fund at the
net asset value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account balance of $1,000 in the Fund
distributing the dividends. The Fund will reinvest dividend checks (and future
dividends) in shares of that same class of the Fund if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, generally will not be liable for
federal income taxes to the extent its earnings are distributed. To so qualify,
the Fund must satisfy certain income and asset diversification requirements, and
must distribute to its shareholders at least 90% of its investment company
taxable income (including net short-term capital gain). Distributions of
investment company taxable income are taxable to shareholders as ordinary
income.
The Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income. If any net realized long-term capital gains in excess of net
realized short-term capital losses are retained by the Fund for reinvestment,
requiring federal income taxes to be paid thereon by the Fund, the Fund intends
to elect to treat such capital gains as having been distributed to shareholders.
As a result, each shareholder will report such capital gains as long-term
capital gains, will be able to claim a relative share of federal income taxes
paid by the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such gains reported and the individual tax
credit.
Dividends from domestic corporations are expected to comprise a substantial part
of the Fund's gross income. To the extent that such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to
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have been held by the Fund or the shareholder, as the case may be, for less than
46 days during the 90-day period beginning 45 days before the shares become
ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date. If shares are
held in a tax-deferred account, such as a retirement plan, income and gain will
not be taxable each year. Instead, the taxable portion of amounts held in a
tax-deferred account generally will be subject to tax as ordinary income only
when distributed from that account.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options on portfolio stock) written or
purchased by the Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend, in the
case of a lapse or sale of the option, on the Fund's holding period for the
option and, in the case of an exercise of the option, on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or substantially identical security in
the Fund's portfolio. If the Fund writes a call option, no gain is recognized
upon its receipt of a premium. If the option lapses or is closed out, any gain
or loss is treated as a short-term capital gain or loss. If a call option is
exercised, any resulting gain or loss is short-term or long-term capital gain or
loss depending on the holding period of the underlying security. The exercise of
a put option written by the Fund is not a taxable transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of the Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under certain circumstances, entry into a futures
contract to sell a security may constitute a short sale for federal income tax
purposes, causing an adjustment in the holding period of the underlying security
or a substantially identical security in the Fund's portfolio.
Positions of the Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or
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securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments.. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
If the Fund holds zero coupon securities or other securities which are issued at
a discount a portion of the difference between the issue price and the face
value of such securities ("original issue discount") will be treated as income
to the Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the investment company taxable income of the Fund which
must be distributed to shareholders in order to maintain the qualification of
the Fund as a regulated investment company and to avoid federal income tax at
the Fund level. If the Fund acquires a debt instrument at a market discount, a
portion of the gain recognized (if any) on disposition of such instrument may be
treated as ordinary income.
The Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may be long-term or short-term depending upon the shareholder's holding
period for the shares. A shareholder who has redeemed shares of the Fund or any
other Kemper Mutual Fund listed herein under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described herein under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of the same Fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of the Fund's shares for shares of another fund
is treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
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After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
the Fund continues to be treated as a regulated investment company under
Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders of the Fund may be subject to state, local and foreign taxes on
Fund distributions and dispositions of Fund shares.
Retirement Plans
Shares of the Fund may be purchased as an investment in a number of kinds of
retirement plans, including qualified pension, profit sharing, money purchase
pension, and 401(k) plans, Code Section 403(b) custodial accounts, and
individual retirement accounts.
One of the tax-deferred retirement plan accounts that may hold Fund shares is an
individual retirement account ("IRA"). There are three kinds of IRAs that an
individual may establish: traditional IRAs, Roth IRAs and education IRAs. With a
traditional IRA, an individual may be able to make a deductible contribution of
up to $2,000 or, if less, the amount of the individual's earned income for any
taxable year prior to the year the individual reaches 70 1/2 if neither the
individual nor his or her spouse is an active participant in an employer's
retirement plan. An individual who is (or who has a spouse who is) an active
participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that year. One
spouse also may contribute up to $2,000 per year to the other spouse's own IRA,
even if the other spouse has earned income of less than $2,000, as long as the
spouses' joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan, may be rolled over into a
traditional IRA also.
With a Roth IRA, an individual may make only non-deductible contributions;
contributions can be made of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year, but only if the individual's
(and spouse's, if applicable) adjusted gross income for the year is less than
$95,000 for single individuals or $150,000 for married individuals. The maximum
contribution amount phases out and falls to zero between $95,000 and $110,000
for single persons and between $150,000 and $160,000 for married persons.
Contributions to a Roth IRA may be made even after the individual attains age 70
1/2. Distributions from a Roth IRA that satisfy certain requirements will not be
taxable when taken; other distributions of earnings will be taxable. An
individual with adjusted gross income of $100,000 or less generally may elect to
roll over amounts from a traditional IRA to a Roth IRA. The full taxable amount
held in the traditional IRA that is rolled over to a Roth IRA will be taxable in
the year of the rollover, except rollovers made for 1998, which may be included
in taxable income over a four year period.
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An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (postsecondary) educational institution. An individual may
contribute to an educational IRA for the benefit of a child under 18 years old
if the individual's income does not exceed certain limits. The maximum
contribution for the benefit of any one child is $500 per year. Contributions
are not deductible, but earnings accumulate tax-free until withdrawal, and
withdrawals used to pay qualified higher education expenses of the beneficiary
(or transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers under which
an employer may establish IRA accounts for its employees in lieu of establishing
more complicated retirement plans, such as qualified profit sharing or 401(k)
plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE IRAs, they
permit employers to maintain a retirement program for their employees without
being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
Please call the Fund to obtain information regarding the establishment of IRAs
or other retirement plans. A retirement plan custodian may charge fees in
connection with establishing and maintaining the plan. An investor should
consult with a competent adviser for specific advice concerning his or her tax
status and the possible benefits of establishing one or more retirement plan
accounts. The description above is only very general; there are numerous other
rules applicable to these plans to be considered before establishing one.
Shareholders should consult their tax advisors about the application of the
provisions of tax law in light of their particular tax situations.
PERFORMANCE
A Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for each class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of a Fund. A Fund with fees or expenses being
waived or absorbed by Scudder Kemper may also advertise performance information
before and after the effect of the fee waiver or expense absorption.
The Fund's historical performance or return for a class of shares may be shown
in the form of "average annual total return" and "total return" figures. These
measures of performance are described below. Performance information will be
computed separately for each class. The Advisor has agreed to a reduction of its
management fee for the Fund to the extent specified herein. See "Investment
Manager and Underwriter." This fee reduction will improve the performance
results of the Fund.
Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in the Fund's portfolio. The
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual total
return for each class of the Fund for a specific period is found by first taking
a hypothetical $1,000 investment ("initial investment") in the class' shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. Average annual return quotations will be
determined to the nearest 1/100th of 1%. The redeemable value in the case of
Class B shares or Class C shares include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. Average
annual return calculated in accordance with this formula does not take into
account any required payments for federal of state income taxes. Such quotations
for Class B shares for periods over six years will reflect conversion of such
shares to Class A shares at the end of the sixth year. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Average annual total return may also be calculated in a manner not consistent
with the standard formula described above, without deducting the maximum sales
charge or contingent deferred sales charge.
35
<PAGE>
Average Annual Total Return for period ended September 30, 1998
(Adjusted for the maximum sales charge)
---------------------------------------
Life of
1-Year Fund(1)
------ -------
Class A shares N/A -8.92%
Class B shares N/A -7.56
Class C shares N/A -4.67
(1) For the period beginning January 30, 1998 (commencement of operations).
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "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 the Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares or Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B and Class C shares
would be reduced if such charges were included.
The Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. The Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of
Class B shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. 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.
Returns and net asset value will fluctuate. Factors affecting the Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce returns described in this section. Shares of the Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the indices which are described
herein. The Consumer Price Index is generally considered to be a measure of
inflation. The Dow Jones Industrial Average and the Standard & Poor's 500 Stock
Index are indices of common stocks which are considered to be generally
representative of the U.S. stock market. The Financial Times/Standard & Poor's
Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
36
<PAGE>
The Fund's performance may be compared to that of the Consumer Price Index and
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 Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products. Bank product
performance may be based upon, among other things, the BANK RATE MONITOR
National Index(R) or various certificate of deposit indexes. The Fund may also
describe its portfolio holdings and depict its size or relative size compared to
other mutual funds, the number and make-up of its shareholder base and other
descriptive factors concerning the Fund.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes such as 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. Certain
of these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured. Economic indicators may include, without
limitation, indicators of market rate trends and cost of funds, such as Federal
Home Loan Bank Board 11th District Cost of Funds Index ("COFI"). Due to their
short maturities, Treasury bills generally experience very low market value
volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable), the IBC/Donoghue's Money Fund Report@ or Money Market
Insight@, reporting services on money market funds.. As reported by Financial
Data Inc., all investment results represent total return (annualized results for
the period net of management fees and expenses) and one year investment results
are effective annual yields assuming reinvestment of dividends.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birth dates, their principal
occupations and their affiliations, if any, with the Advisor, and KDI, the
principal underwriter, are as follows (the number following each person's title
is the number of investment companies managed by the Advisor for which he or she
holds similar positions and the date following each person's name is his or her
date of birth):
*DANIEL PIERCE, (3/18/34) Chairman of the Board (35), Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
*MARK S. CASADY (9/21/60) President (14), Two International Place, Boston,
Massachusetts, Managing Director, Scudder Kemper Investments, Inc.
JAMES E. AKINS (10/15/26) Trustee (14), 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly a
career United States Foreign Service Officer, Energy Advisor for the White House
and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Trustee (14), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H. Donnelly Corp.
37
<PAGE>
FREDERICK T. KELSEY (4/25/27) Trustee (14), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Northern Institutional Funds;
formerly, Trustee of the Pilot Fund.
THOMAS W. LITTAUER (4/26/55), Board Member*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
FRED B. RENWICK (2/1/30) Trustee (14), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35) Trustee (14), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33) Trustee (14), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.
*PHILIP J. COLLORA (11/15/45) Vice President, Treasurer and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper Investments, Inc.
*LORI J. ENSINGER (12/12/61) Vice President, 345 Park Avenue, New York, New
York; Senior Vice President, Scudder Kemper Investments, Inc.
*ROBERT T. HOFFMAN (12/7/58) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper Investments, Inc.
*KATHRYN L. QUIRK (12/3/52) Vice President (34), 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc., Vice
President, Kemper Distributors, Inc.
38
<PAGE>
* Interested persons of the Trust as defined in the Investment Company Act of
1940.
Compensation of Officers and Trustees
The Trustees and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those Trustees who are not designated "interested persons". The
information in the last column is for calendar year 1998.
Total
Aggregate Compensation
Compensation From Kemper Fund
From Kemper Complex Paid to
Name of Board Members Securities Trust Board Members (2)
- --------------------- ---------------- -----------------
James E. Akins................ TO BE UPDATED
Arthur R. Gottschalk (1)......
Frederick T. Kelsey (1).......
Fred B. Renwick...............
John B. Tingleff..............
John G. Weithers..............
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds - Zurich
Money Market Fund.
(2) Includes compensation for service on the boards of 13 Kemper fund with 39
funds portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios.
The Independent Trustees also serve in the same capacity for other funds managed
by the Advisor. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules.
The Trustees and Officers as a group owned less than 1% of the Fund's shares as
of the commencement of operations.
Principal Holders of Securities
As of December 31, 1998 the following owned of record more than 5% of the
outstanding stock of the Fund as set forth below.
Kemper US Growth & Income Fund
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 11.02
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 6.70
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 C 5.96
39
<PAGE>
Banc One Securities Corp
733 Greencrest Dr
Westerville, OH 43081 C 59.85
SHAREHOLDER RIGHTS
The Fund is a series of Kemper Securities Trust (formerly Kemper Growth and
Income Fund), a Massachusetts business trust established under an Agreement and
Declaration of Trust of the Trust ("Declaration of Trust"), dated October 1,
1997.
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Funds," all having a par value of $0.01, which may be divided
by the Board of Trustees into classes of shares. While only shares of a single
Fund with three classes are presently being offered by the Trust, the Board of
Trustees of the Fund may authorize the issuance of additional classes and
additional Funds if deemed desirable, each with its own investment objective,
policies and restrictions. Since the Trust may offer multiple Funds, it is known
as a "series company." Currently, the Trust offers three classes of shares of a
single Portfolio. These are Class A, Class B and Class C shares. Shares of a
Portfolio have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each such
class' Rule 12b-1 Plan. Shares of each class also have equal rights with respect
to dividends, assets and liquidation of the Fund subject to any preferences
(such as resulting from different Rule 12b-1 distribution fees), rights or
privileges of any classes of shares of the Fund. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. If shares of more than one Portfolio are
outstanding, shareholders will vote by Fund and not in the aggregate or by class
except when voting in the aggregate is required under the 1940 Act, such as for
the election of trustees, or when voting by class is appropriate.
The Fund's activities are supervised by the Trust's Board of Trustees.
The Fund generally is not required to hold meetings of its shareholders. Under
the Declaration of Trust, however, shareholder meetings will be held in
connection with the following matters: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the adoption of any contract for
which approval by shareholders is required by the 1940 Act; (c) any termination
of the Fund or a class to the extent and as provided in the Declaration of
Trust; (d) any amendment of the Declaration of Trust (other than amendments
changing the name of the Fund, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Fund, or any registration of the Fund
with the SEC or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be
40
<PAGE>
filled only by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any class by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by the Advisor 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 may determine, without further
shareholder approval, in the future that the objectives of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure. A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. An
existing investment company is able to convert to a feeder fund by selling all
of its investments, which involves brokerage and other transaction costs and the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of the Class A shares of the Fund is 487915 10 0.
The CUSIP number of the Class B shares of the Fund is 487915 20 9.
The CUSIP number of the Class C shares of the Fund is 487915 30 8.
41
<PAGE>
The Fund has a fiscal year ending September 30.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Advisor in light of the Fund's investment objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.
Costs of $11,000 incurred by the Fund, in conjunction with its organization, are
amortized over the five-year period beginning February 1, 1998.
Portfolio securities of the Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, State Street Bank and Trust Company.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Kemper Securities Trust" is the designation of the Trust for the time
being under a Declaration of Trust dated October 1, 1997, as amended from time
to time, and all persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents, shareholders nor other series of the Trust assume
any personal liability for obligations entered into on behalf of the Fund. No
other series of the Trust assumes any liabilities for obligations entered into
on behalf of the Fund. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. The Declaration of Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Fund has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
[TO BE UPDATEED]
The Statement of Assets and Liabilities as of September 30, 1998 and the Report
of Independent Auditors is filed herein.
42
<PAGE>
KEMPER SECURITIES TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C>
(a)(1) Declaration of Trust dated October 1, 1997.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(a)(2) Written Consent of Amendment to the Declaration of Trust dated January 8,
1998.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(b) By-laws.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(c) Text of Share Certificate. Filed herein.
(d)(1) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated January 30, 1998. Filed herein.
(d)(2) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated September 7, 1998. Filed herein.
(d)(3) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Scudder Kemper Investments, Inc.,
dated May 6, 1998. Filed herein.
(d)(4) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Scudder Kemper Investments, Inc.,
dated September 7, 1998. Filed herein.
(e)(1) Underwriting Agreement between the Registrant, on behalf of Kemper U.S.
Growth and Income Fund, and Kemper Distributors, Inc. dated January 30,
1998. Filed herein.
(e)(2) Underwriting Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Distributors, Inc. dated May 6, 1998.
Filed herein.
(e)(3) Underwriting Agreement between the Registrant, on behalf of Kemper U.S.
Growth and Income Fund, and Kemper Distributors, Inc. dated August 1, 1998.
Filed herein.
(e)(4) Underwriting Agreement between the Registrant, on behalf of Kemper U.S.
Growth and Income Fund, and Kemper Distributors, Inc. dated September 7,
1998. Filed herein.
(e)(5) Underwriting Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value, and Kemper Distributors, Inc. dated August 1, 1998. Filed
herein.
Part C - Page 2
<PAGE>
(e)(6) Underwriting Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value, and Kemper Distributors, Inc. dated September 7, 1998. Filed
herein.
(f) Inapplicable.
(g)(1) Custodian Agreement. Filed herein.
(h)(1) Agency Agreement between the Registrant, on behalf of Kemper U.S. Growth and
Income Fund, and Kemper Service Company, dated January 30, 1998. Filed
herein.
(h)(2) Fee schedules for Exhibit (h)(1)
(h)(3) Agency Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Service Company, dated May 6, 1998. Filed
herein.
(h)(4) Fee schedules for Exhibit (h)(3). Filed herein.
(h)(5) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Fund Accounting Corp., dated
January 30, 1998. Filed herein.
(h)(6) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Scudder Fund Accounting Corp.,
dated May 6, 1998. Filed herein.
(h)(7) Administrative Services Agreement between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Kemper Distributors, Inc., dated
January 30, 1998. Filed herein.
(h)(8) Administrative Services Agreement between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Kemper Distributors, Inc., dated
May 6, 1998. Filed herein.
(i) Inapplicable.
(j) Consent of Independent Accountants. Filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m)(1) Rule 12b-1 Plan between Kemper U.S. Growth and Income Fund (Class B Shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
(m)(2) Rule 12b-1 Plan between Kemper U.S. Growth and Income Fund (Class C Shares)
and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
(m)(3) Rule 12b-1 Plan between Kemper Small Cap Relative Value Fund (Class B
Shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
Part C - Page 3
<PAGE>
(m)(4) Rule 12b-1 Plan between Kemper Small Cap Relative Value Fund (Class C
Shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
(n) Financial Data Schedule. Filed herein.
(o) Rule 18f-3 Plan. Filed herein.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 23(a) hereto, which is incorporated herein by reference) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding Corp.
("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark,
Inc. ("Scudder") and the representatives of the beneficial owners of the capital
stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and employees
who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Part C - Page 4
<PAGE>
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
Part C - Page 5
<PAGE>
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b)
Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None.
Thomas W. Littauer Director, Chief Executive Officer Trustee and Vice President.
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President.
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None.
President
Linda J. Wondrack Vice President and Chief Compliance Vice President.
Officer
Paula Gaccione Vice President None.
Michael E. Harrington Vice President None.
Robert A. Rudell Vice President None.
William M. Thomas Vice President None.
Part C - Page 6
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Elizabeth C. Werth Vice President Assistant Secretary.
Todd N. Gierke Assistant Treasurer None.
Philip J. Collora Assistant Secretary Vice President and Secretary.
Paul J. Elmlinger Assistant Secretary None.
Diane E. Ratekin Assistant Secretary None.
Daniel Pierce Director, Chairman None.
Mark S. Casady Director, Vice Chairman President.
Stephen R. Beckwith Director None.
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of the
Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 25th day of
January, 1999.
By: /s/Mark S. Casady
--------------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 25, 1999 on behalf of
the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/Daniel Pierce* Chairman and Trustee
- --------------------------------------
/s/James E. Akins* Trustee
- --------------------------------------
/s/Arthur R. Gottschalk* Trustee
- --------------------------------------
/s/Frederick T. Kelsey* Trustee
- --------------------------------------
/s/Thomas W. Littauer Trustee
- --------------------------------------
/s/Fred B. Renwick* Trustee
- --------------------------------------
/s/John B. Tingleff* Trustee
- --------------------------------------
/s/John G. Weithers* Trustee
- --------------------------------------
Treasurer (Principal Financial
/s/John R. Hebble and Accounting Officer)
- --------------------------------------
John R. Hebble
By: /s/Philip J. Collora
-----------------------
Philip J. Collora*
* Philip J. Collora signs this document pursuant to powers of attorney
filed with Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form N-1A filed on December 3, 1998.
<PAGE>
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 4
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 5
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER SECURITIES TRUST
<PAGE>
KEMPER SECURITIES TRUST
EXHIBIT INDEX
Exhibit (d)(1)
Exhibit (d)(2)
Exhibit (d)(3)
Exhibit (d)(4)
Exhibit (e)(1)
Exhibit (e)(2)
Exhibit (e)(3)
Exhibit (e)(4)
Exhibit (e)(5)
Exhibit (e)(6)
Exhibit (g)(1)
Exhibit (h)(1)
Exhibit (h)(2)
Exhibit (h)(3)
Exhibit (h)(4)
Exhibit (h)(5)
Exhibit (h)(6)
Exhibit (h)(7)
Exhibit (h)(8)
Exhibit (j)
Exhibit (m)(1)
Exhibit (m)(2)
Exhibit (m)(3)
Exhibit (m)(4)
Exhibit (n)
Exhibit (o)
TEXT OF SHARE CERTIFICATE
[Name]
is the owner of [number] shares
of beneficial interest in the above noted Fund (the "FUND"), of the
series and class, if any, specified, fully paid and nonassessable, the
said shares being issued and held subject to the provisions of the
Agreement and Declaration of Trust of the Fund, and all amendments
thereto, copies of which are on file with the Secretary of The
Commonwealth of Massachusetts. The said owner by accepting this
certificate agrees to and is bound by all of the said provisions. The
shares represented hereby are transferable in writing by the owner
thereof in person or by attorney upon surrender of this certificate to
the Fund properly endorsed for transfer. This certificate is executed
on behalf of the Trustees of the Fund as Trustees and not individually
and the obligations hereof are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the
assets and property of the Fund or, if applicable, the specified
series of the Fund. The shares may be subject to a contingent deferred
sales charge. This certificate is not valid unless countersigned by
the Transfer Agent.
INVESTMENT MANAGEMENT AGREEMENT
Kemper Securities Trust
Two International Place
Boston, Massachusetts 02110
January 30, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper U.S. Growth and Income Fund
Ladies and Gentlemen:
Kemper Securities Trust (the "Trust") has been established as a Massachusetts
business Trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest, par value $0.01 per share, (the "Shares") in separate
series, or funds. The Board of Trustees has authorized Kemper U.S. Growth and
Income Fund (the "Fund"). Series may be abolished and dissolved, and additional
series established, from time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration dated October 2, 1997, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest dated January 21, 1998 relating to the
Fund.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies
<PAGE>
and restrictions set forth in the Prospectus and SAI; the applicable provisions
of the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code")
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining
2
<PAGE>
the amount of dividends and distributions available to be paid by the Fund to
its shareholders, preparing and arranging for the printing of dividend notices
to shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.60 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250 million, the fee payable for that month based on the portion
of the average of such values in excess of $250 million up to and including $1
billion shall be 1/12 of 0.57 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such values exceeds $1
billion, the fee payable for that month based on the portion of the average of
such values in excess of $1 billion up to and including $2.5 billion shall be
1/12 of 0.55 of 1 percent of such portion; and provided that, for any calendar
month during which the average of such values exceeds $2.5 billion, the fee
payable for that month based on the portion of the average of such values in
excess of $2.5 billion shall be 1/12 of 0.53 of 1 percent of such portion over
the lowest applicable expense fully described below or over any compensation
waived by you from time to time (as more fully described below). You shall be
entitled to receive during any month such interim payments of your fee hereunder
as you shall request, provided that no such payment shall exceed 75 percent of
the amount of your fee then accrued on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
4
<PAGE>
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until 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.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Kemper Securities Trust, on behalf of
Kemper U.S. Growth and Income Fund
By: /s/Mark S. Casady
----------------------------------
Mark S. Casady
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
---------------------------------
Stephen R. Beckwith
Treasurer
6
INVESTMENT MANAGEMENT AGREEMENT
Kemper Securities Trust
Two International Place
Boston, Massachusetts 02110
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper U.S. Growth and Income Fund
Ladies and Gentlemen:
Kemper Securities Trust (the "Trust") has been established as a Massachusetts
business Trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest, par value $0.01 per share, (the "Shares") in separate
series, or funds. The Board of Trustees has authorized Kemper U.S. Growth and
Income Fund (the "Fund"). Series may be abolished and dissolved, and additional
series established, from time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration dated October 2, 1997, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest dated January 21, 1998 relating to the Fund.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies
<PAGE>
and restrictions set forth in the Prospectus and SAI; the applicable provisions
of the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code")
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of
2
<PAGE>
dividends and distributions available to be paid by the Fund to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
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
3
<PAGE>
States Dollars on the last day of each month the unpaid balance of a fee equal
to the excess of 1/12 of 0.60 of 1 percent of the average daily net assets as
defined below of the Fund for such month; provided that, for any calendar month
during which the average of such values exceeds $250 million, the fee payable
for that month based on the portion of the average of such values in excess of
$250 million up to and including $1 billion shall be 1/12 of 0.57 of 1 percent
of such portion; provided further that, for any calendar month during which the
average of such values exceeds $1 billion, the fee payable for that month based
on the portion of the average of such values in excess of $1 billion up to and
including $2.5 billion shall be 1/12 of 0.55 of 1 percent of such portion; and
provided that, for any calendar month during which the average of such values
exceeds $2.5 billion, the fee payable for that month based on the portion of the
average of such values in excess of $2.5 billion shall be 1/12 of 0.53 of 1
percent of such portion over the lowest applicable expense fully described below
or over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
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
4
<PAGE>
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect you against any
liability to the Trust, the Fund or its shareholders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your reckless
disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until 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.
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
5
<PAGE>
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Kemper Securities Trust, on behalf of
Kemper U.S. Growth and Income Fund
By: /s/Mark S. Casady
-----------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S.R. Beckwith
----------------------------
Treasurer
6
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:
(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
<PAGE>
regulations thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to policies and
instructions adopted by the Trust's Board of Trustees. In connection therewith,
you shall use reasonable efforts to manage the Fund so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
act upon advice of counsel to the Trust. You shall also make available to the
Trust promptly upon request all of the Fund's investment records and ledgers as
are necessary to assist the Trust in complying with the requirements of the 1940
Act and other applicable laws. To the extent required by law, you shall furnish
to regulatory authorities having the requisite authority any information or
reports in connection with the services provided pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the Trust
are being conducted in a manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining 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
2
<PAGE>
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
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 values exceeds
$1.0 billion, the fee payable for that month based on the portion of the average
of such
3
<PAGE>
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 day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
4
<PAGE>
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until 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.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Kemper Securities Trust, on behalf of
Kemper Small Cap Relative Value Fund,
By: /s/Mark S. Casady
-----------------------------------
Mark S. Casady
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
-----------------------------------
Stephen R. Beckwith
Treasurer
6
INVESTMENT MANAGEMENT AGREEMENT
Kemper Securities Trust
Two International Place
Boston, Massachusetts 02110
September 7, 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:
(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
<PAGE>
regulations thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to policies and
instructions adopted by the Trust's Board of Trustees. In connection therewith,
you shall use reasonable efforts to manage the Fund so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
act upon advice of counsel to the Trust. You shall also make available to the
Trust promptly upon request all of the Fund's investment records and ledgers as
are necessary to assist the Trust in complying with the requirements of the 1940
Act and other applicable laws. To the extent required by law, you shall furnish
to regulatory authorities having the requisite authority any information or
reports in connection with the services provided pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the Trust
are being conducted in a manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining 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
2
<PAGE>
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
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 values exceeds
$1.0 billion, the fee payable for that month based on the portion of the average
of such
3
<PAGE>
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 day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
4
<PAGE>
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until 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.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Kemper Securities Trust, on behalf of
Kemper Small Cap Relative Value Fund,
By: /s/Mark S. Casady
-----------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
-----------------
Treasurer
6
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 30th day of January, 1998 between KEMPER SECURITIES TRUST, a
Massachusetts business trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a
Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for the distribution of shares
of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the Fund
in any way. KDI, by separate agreement with the Fund, may also serve the Fund in
other capacities. The services of KDI to the Fund under this Agreement are not
to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of
<PAGE>
existing and potential shareholders who may be clients of such Firms. Such Firms
shall at all times be deemed to be independent contractors retained by KDI and
not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Articles of Incorporation of the Fund.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the then current prospectus. The price the Fund shall receive for all shares
purchased from it shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess of the sales
price over the net asset value of the shares of the Fund sold by KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein
2
<PAGE>
contemplated such shares as KDI shall reasonably request and as the Securities
and Exchange Commission shall permit to be so registered. Notwithstanding any
other provision hereof, the Fund may terminate, suspend or withdraw the offering
of shares whenever, in its sole discretion, it deems such action to be
desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Director or officer of the Fund or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., relating to such sale or reacquisition, as the case
may be, and will indemnify and save harmless the Fund from any damage or expense
on account of any wrongful act by KDI or any employee, representative or agent
of KDI. KDI will observe and be bound by all the provisions of the Articles of
Incorporation of the Fund (and of any fundamental policies
3
<PAGE>
adopted by the Fund pursuant to the Investment Company Act of 1940, notice of
which shall have been given to KDI) which at the time in any way require, limit,
restrict, prohibit or otherwise regulate any action on the part of KDI
hereunder.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) of any registration of the Fund and its shares
under the United States securities laws and expenses incident to the issuance of
shares of beneficial interest, such as the cost of share certificates, issue
taxes, and fees of the transfer agent. KDI will pay all expenses (other than
expenses which one or more Firms may bear pursuant to any agreement with KDI)
incident to the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all (a) expenses of
printing and distributing any prospectus and of preparing, printing and
distributing or disseminating any other literature, advertising and selling aids
in connection with the offering of the shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), (b) expenses of advertising in connection with such offering
and (c) expenses (other than the Fund's auditing expenses) of qualifying or
continuing the qualification of the shares for sale and, in connection
therewith, of qualifying or continuing the qualification of the Fund as a dealer
or broker under the laws of such states as may be designated by KDI under the
conditions herein specified. No transfer taxes, if any, which may be payable in
connection with the issue or delivery of shares sold as herein contemplated or
of the certificates for such shares shall be borne by the Fund, and KDI will
indemnify and hold harmless the Fund against liability for all such transfer
taxes.
8. For the services and facilities described herein in connection with Class B
shares and Class C shares of each series of the Fund, the Fund will pay to KDI
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class B
shares and Class C shares of each such series. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively. The foregoing fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI under Section 2 hereof.
4
<PAGE>
The net asset value shall be calculated in accordance with the provisions of the
Fund's current prospectus. On each day when net asset value is not calculated,
the net asset value of a share of any class of any series of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last previous day on which such calculation was made. The distribution
services fee for any class of a series of the Fund shall be based upon average
daily net assets of the series attributable to the class and such fee shall be
charged only to such class.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Trustees.
10. To the extent applicable, this Agreement constitutes the plan for the Class
B shares and Class C shares of each series of the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940; and this Agreement and plan shall be
approved and renewed in accordance with Rule 12b-1 for such Class B shares and
Class C shares separately.
This Agreement shall become effective on the date hereof and shall continue
until January 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
5
<PAGE>
amendments to this Agreement must in any event be approved by a vote of the
Board of Trustees of the Fund including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in
this Agreement or in any agreement related to this Agreement, cast in person at
a meeting called for such purpose.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. this Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Find arising
hereunder allocated to a particular series of class, whether in accordance with
the express terms hereof or otherwise, KDI shall have recourse solely against
the assets of that series or class to satisfy such claim and shall have no
recourse against the assets of any other series or class for such purpose.
6
<PAGE>
15. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 14 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund ATTEST:
By: /s/Mark S. Casady /s/Maureen E. Kane
----------------- ------------------
Mark S. Casady Title: Ass't Secretary
President
KEMPER DISTRIBUTORS, INC. ATTEST:
By: /s/James L. Greenawalt /s/Philip J. Collora
---------------------- --------------------
Title: Ass't Sec.
TITLE: President
---------
7
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 services of KDI to the Fund under this Agreement are not
to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of
<PAGE>
existing and potential shareholders who may be clients of such Firms. Such Firms
shall at all times be deemed to be independent contractors retained by KDI and
not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Articles of Incorporation of the Fund.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the then current prospectus. The price the Fund shall receive for all shares
purchased from it shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess of the sales
price over the net asset value of the shares of the Fund sold by KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein
2
<PAGE>
contemplated such shares as KDI shall reasonably request and as the Securities
and Exchange Commission shall permit to be so registered. Notwithstanding any
other provision hereof, the Fund may terminate, suspend or withdraw the offering
of shares whenever, in its sole discretion, it deems such action to be
desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Director or officer of the Fund or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., relating to such sale or reacquisition, as the case
may be, and will indemnify and save harmless the Fund from any damage or expense
on account of any wrongful act by KDI or any employee, representative or agent
of KDI. KDI will observe and be bound by all the provisions of the Articles of
Incorporation of the Fund (and of any fundamental policies
3
<PAGE>
adopted by the Fund pursuant to the Investment Company Act of 1940, notice of
which shall have been given to KDI) which at the time in any way require, limit,
restrict, prohibit or otherwise regulate any action on the part of KDI
hereunder.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) of any registration of the Fund and its shares
under the United States securities laws and expenses incident to the issuance of
shares of beneficial interest, such as the cost of share certificates, issue
taxes, and fees of the transfer agent. KDI will pay all expenses (other than
expenses which one or more Firms may bear pursuant to any agreement with KDI)
incident to the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all (a) expenses of
printing and distributing any prospectus and of preparing, printing and
distributing or disseminating any other literature, advertising and selling aids
in connection with the offering of the shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), (b) expenses of advertising in connection with such offering
and (c) expenses (other than the Fund's auditing expenses) of qualifying or
continuing the qualification of the shares for sale and, in connection
therewith, of qualifying or continuing the qualification of the Fund as a dealer
or broker under the laws of such states as may be designated by KDI under the
conditions herein specified. No transfer taxes, if any, which may be payable in
connection with the issue or delivery of shares sold as herein contemplated or
of the certificates for such shares shall be borne by the Fund, and KDI will
indemnify and hold harmless the Fund against liability for all such transfer
taxes.
8. For the services and facilities described herein in connection with Class B
shares and Class C shares of each series of the Fund, the Fund will pay to KDI
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class B
shares and Class C shares of each such series. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively. The foregoing fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI under Section 2 hereof.
4
<PAGE>
The net asset value shall be calculated in accordance with the provisions of the
Fund's current prospectus. On each day when net asset value is not calculated,
the net asset value of a share of any class of any series of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last previous day on which such calculation was made. The distribution
services fee for any class of a series of the Fund shall be based upon average
daily net assets of the series attributable to the class and such fee shall be
charged only to such class.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Trustees.
10. To the extent applicable, this Agreement constitutes the plan for the Class
B shares and Class C shares of each series of the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940; and this Agreement and plan shall be
approved and renewed in accordance with Rule 12b-1 for such Class B shares and
Class C shares separately.
This Agreement shall become effective on the date hereof and shall continue
until 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
5
<PAGE>
vote of the Board of Trustees of the Fund including the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to this Agreement, cast
in person at a meeting called for such purpose.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Find arising
hereunder allocated to a particular series of class, whether in accordance with
the express terms hereof or otherwise, KDI shall have recourse solely against
the assets of that series or class to satisfy such claim and shall have no
recourse against the assets of any other series or class for such purpose.
6
<PAGE>
15. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 14 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf of
Kemper Small Cap Relative Value Fund ATTEST:
By: /s/Mark S. Casady /s/Maureen Kane
----------------- ---------------
Mark S. Casady Title: Ass't Secretary
President
KEMPER DISTRIBUTORS, INC. ATTEST:
By: /s/James L. Greenawalt /s/Philip J. Collora
---------------------- --------------------
Title: Assist. Secretary
TITLE: President
7
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 1st day of August, 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of 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
<PAGE>
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 Fund's
organizational documents.
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
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, any 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 the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
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 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.
<PAGE>
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 Board member or officer of the Fund or to
any officer or Board member 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 Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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
<PAGE>
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 or 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. This Agreement shall become effective on the date hereof and shall
continue until March 1, 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.
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 members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
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.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. 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.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. 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 Fund
arising hereunder allocated to a particular series or 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf
of Kemper U.S. Growth and Income Fund
By: /s/Mark S. Casady
-----------------
Title: President
--------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Ass't Secretary
---------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------
Title: President
----------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 7th day of September, 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of 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
<PAGE>
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 Fund's
organizational documents.
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
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, any 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 the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
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 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.
<PAGE>
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 Board member or officer of the Fund or to
any officer or Board member 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 Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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
<PAGE>
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 or 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. This Agreement shall become effective on the date hereof and shall
continue until March 1, 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.
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 members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
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.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. 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.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. 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 Fund
arising hereunder allocated to a particular series or 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf
of Kemper U.S. Growth and Income Fund
By: /s/Mark S. Casady
-----------------
Title: President
--------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Ass't Secretary
---------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------
Title: President
----------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 1st day of August, 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of 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
<PAGE>
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 Fund's
organizational documents.
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
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, any 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 the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
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 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.
<PAGE>
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 Board member or officer of the Fund or to
any officer or Board member 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 Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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
<PAGE>
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 or 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. This Agreement shall become effective on the date hereof and shall
continue until March 1, 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.
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 members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
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.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. 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.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. 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 Fund
arising hereunder allocated to a particular series or 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
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 Capitalization Relative
Value Fund
By: /s/Mark S. Casady
-----------------
Title: President
--------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Asst. Secretary
---------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------
Title: President
----------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 7th day of September, 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of 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
<PAGE>
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 Fund's
organizational documents.
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
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, any 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 the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
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 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.
<PAGE>
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 Board member or officer of the Fund or to
any officer or Board member 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 Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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
<PAGE>
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 or 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. This Agreement shall become effective on the date hereof and shall
continue until March 1, 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.
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 members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
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.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. 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.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. 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 Fund
arising hereunder allocated to a particular series or 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
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 Capitalization Relative
Value Fund
By: /s/Mark S. Casady
-----------------
Title: President
--------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Ass't Secretary
---------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------
Title: President
----------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
CUSTODIAN CONTRACT
between
KEMPER SECURITIES TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It.................1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States...................2
2.1 Holding Securities...........................................2
2.2 Delivery of Securities.......................................2
2.3 Registration of Securities...................................4
2.4 Bank Accounts................................................5
2.5 Availability of Federal Funds................................5
2.6 Collection of Income.........................................5
2.7 Payment of Fund Monies.......................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.........................................7
2.9 Appointment of Agents........................................7
2.10 Deposit of Securities in U.S. Securities System..............7
2.11 Fund Assets Held in the Custodian's
Direct Paper System..........................................8
2.12 Segregated Account...........................................9
2.13 Ownership Certificates for Tax Purposes ....................10
2.14 Proxies.....................................................10
2.15 Communications Relating to Portfolio Securities.............10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States..............................11
3.1 Appointment of Foreign Sub-Custodians.......................11
3.2 Assets to be Held...........................................11
3.3 Foreign Securities Depositories.............................11
3.4 Agreements with Foreign Banking Institutions................11
3.5 Access of Independent Accountants of the Fund...............12
3.6 Reports by Custodian........................................12
3.7 Transactions in Foreign Custody Account.....................12
3.8 Liability of Foreign Sub-Custodians.........................12
3.9 Liability of Custodian......................................13
3.10 Reimbursement for Advances..................................13
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TABLE OF CONTENTS
Page
3.11 Monitoring Responsibilities.................................13
3.12 Branches of U.S. Banks......................................14
3.13 Tax Law.....................................................14
4. Payments for Sales or Repurchases or Redemptions
of Shares ...........................................................14
5. Proper Instructions..................................................15
6. Actions Permitted without Express Authority..........................15
7. Evidence of Authority................................................16
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income...................16
9. Records..............................................................16
10. Opinion of Fund's Independent Accountants............................17
11. Reports to Fund by Independent Public Accountants....................17
12. Compensation of Custodian............................................17
13. Responsibility of Custodian..........................................17
14. Effective Period, Termination and Amendment..........................18
15. Successor Custodian..................................................19
16. Interpretive and Additional Provisions...............................20
17. Additional Funds.....................................................20
18. Massachusetts Law to Apply...........................................20
19. Prior Contracts......................................................20
20. Shareholder Communications Election..................................20
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CUSTODIAN CONTRACT
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This Contract between Kemper Securities Trust, a business trust
organized and existing under the laws of The Commonwealth of Massachusetts and
having its principal place of business at 222 South Riverside Plaza, Chicago,
Illinois 60606 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently intends to offer shares in one series,
Kemper U.S. Growth and Income Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with Article 17, being herein referred to as the "Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
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The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
of America ("domestic securities") and securities it desires to be held outside
the United States of America ("foreign securities") pursuant to the provisions
of the Fund's declaration of trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or political subdivision
<PAGE>
thereof and any territory over which its political sovereignty extends (the
"United States" or "U.S."), but only in accordance with an applicable vote by
the board of trustees of the Fund (the "Board of Trustees") on behalf of the
applicable Portfolio(s) and provided that the Custodian shall have no more or
less responsibility or liability to the Fund on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodians for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A hereto
but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
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the Custodian in the United States
----------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which account
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
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5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
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12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
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"street name", the Custodian shall utilize reasonable efforts only to
(i) timely collect income due the Fund on such securities and (ii)
notify the Fund of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Collection of income due each Portfolio on
domestic securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund; the Custodian will have
no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data in its possession as may
be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly
entitled.
5
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2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
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6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
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3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio;
the Custodian shall transfer securities sold for the account
of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the U.S. Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
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1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
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escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of this clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or
of the executive committee thereof signed by an officer of the Fund and
certified by the Fund's Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three (3) business days prior to the date on which
the Custodian is to take such action.
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3. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
Outside of the United States
----------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt of Proper Instructions, together with a certified resolution of
the Board of Trustees, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
11
<PAGE>
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of Portfolio securities and other assets and
advices or notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution for the
Custodian on behalf of its customers indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical
possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or
12
<PAGE>
claim if and to the extent that the Portfolio has not been made whole
for any such loss, damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this Section 3.9, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has
13
<PAGE>
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the
14
<PAGE>
redemption or repurchase of Shares, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. If given pursuant to procedures to be agreed upon by the
Custodian and the Fund, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three - party agreement which requires a segregated
asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
15
<PAGE>
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per share of the
outstanding Shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio(s), shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Prospectus and shall advise the Fund and the Transfer Agent daily of the total
amount of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Prospectus.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
16
<PAGE>
10. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
17
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of the date of its execution,
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 either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by such Portfolio, as required
by Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the
18
<PAGE>
Direct Paper System by such Portfolio; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of the Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
19
<PAGE>
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Kemper U.S Growth and Income Fund with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
-----------------------------------
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
20
<PAGE>
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
21
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of January 26, 1998.
Attest: KEMPER SECURITIES TRUST
/s/Maureen Kane By: /s/Mark S. Casady
- --------------- -----------------
Name: Maureen Kane Name: Mark S. Casady
Title: President
Attest: STATE STREET BANK AND TRUST COMPANY
/s/Thomas M. Lenz By: /s/Ronald E. Logue
- ----------------- ------------------
Thomas M. Lenz Ronald E. Logue
Executive Vice President
22
AGENCY AGREEMENT
AGREEMENT dated the 30th day of January, 1998, by and between KEMPER SECURITIES
TRUST, a Massachusetts business trust ("Fund"), and KEMPER SERVICE COMPANY, a
Delaware corporation ("Service Company").
WHEREAS, Fund wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
---------------------------------------
In connection with the appointment of Service Company as
Transfer Agent and Dividend Disbursing Agent for Fund, there
will be filed with Service Company the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of Fund appointing Service Company as
Transfer Agent and Dividend Disbursing Agent,
approving the form of this Agreement, and designating
certain persons to give written instructions and
requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of
Trust of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the
Securities and Exchange Commission.
E. Specimens of all forms of outstanding share
certificates as approved by the Board of Trustees of
Fund, with a certificate of the Secretary of Fund as
to such approval.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The Commonwealth
<PAGE>
of Massachusetts.
(2) With respect to the status of all shares of
Fund covered by this appointment under the
Securities Act of 1933, and any other
applicable federal or state statute.
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable.
2. Certain Representations and Warranties of Service Company.
----------------------------------------------------------
Service Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and
in good standing under the laws of the State of
Delaware.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate action has been taken to
authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
3. Certain Representations and Warranties of Fund. Fund
-----------------------------------------------
represents and warrants to Service Company that:
A. It is a business trust duly organized and existing
and in good standing under the laws of The
Commonwealth of Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
2
<PAGE>
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of Fund being offered for sale
at any time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
E. Fund and its Trustees are empowered under applicable
laws and by the Fund's Agreement and Declaration of
Trust and Bylaws to enter into and perform this
Agreement.
4. Scope of Appointment.
---------------------
A. Subject to the conditions set forth in this
Agreement, Fund hereby employs and appoints Service
Company as Transfer Agent and Dividend Disbursing
Agent effective the date hereof.
B. Service Company hereby accepts such employment and
appointment and agrees that it will act as Fund's
Transfer Agent and Dividend Disbursing Agent. Service
Company agrees that it will also act as agent in
connection with Fund's periodic withdrawal payment
accounts and other open-account or similar plans for
shareholders, if any.
C. Service Company agrees to provide the necessary
facilities, equipment and personnel to perform its
duties and obligations hereunder in accordance with
industry practice.
D. Fund agrees to use all reasonable efforts to deliver
to Service Company in Kansas City, Missouri, as soon
as they are available, all its shareholder account
records.
E. Subject to the provisions of Sections 20 and 21
hereof, Service Company agrees that it will perform
all the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as agent for the
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
cancelling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies,
3
<PAGE>
mailing shareholder reports and prospectuses,
withholding federal income taxes, preparing and
mailing checks for disbursement of income and capital
gains dividends, preparing and filing all required
U.S. Treasury Department information returns for all
shareholders, preparing and mailing confirmation
forms to shareholders and dealers with respect to all
purchases and liquidations of Fund shares and other
transactions in shareholder accounts for which
confirmations are required, recording reinvestments
of dividends and distributions in Fund shares,
recording redemptions of Fund shares and preparing
and mailing checks for payments upon redemption and
for disbursements to systematic withdrawal plan
shareholders.
5. Compensation and Expenses.
--------------------------
A. In consideration for the services provided hereunder
by Service Company as Transfer Agent and Dividend
Disbursing Agent, Fund will pay to Service Company
from time to time compensation as agreed upon for all
services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to by Fund and Service Company.
The initial agreement regarding compensation is
attached as Exhibit A.
B. Fund agrees to promptly reimburse Service Company for
all reasonable out-of-pocket expenses or advances
incurred by Service Company in connection with the
performance of services under this Agreement
including, but not limited to, postage (and first
class mail insurance in connection with mailing share
certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery,
and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers
or shareholders, microfilm used each year to record
the previous year's transactions in shareholder
accounts and computer tapes used for permanent
storage of records and cost of insertion of materials
in mailing envelopes by outside firms. Service
Company may, at its option, arrange to have various
service providers submit invoices directly
4
<PAGE>
to the Fund for payment of out-of-pocket expenses
reimbursable hereunder.
6. Efficient Operation of Service Company System.
----------------------------------------------
A. In connection with the performance of its services
under this Agreement, Service Company is responsible
for the accurate and efficient functioning of its
system at all times, including:
(1) The accuracy of the entries in Service
Company's records reflecting purchase and
redemption orders and other instructions
received by Service Company from dealers,
shareholders, Fund or its principal
underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from Service Company's records or
data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from Fund.
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers,
shareholders or Fund or other authorized
persons.
(5) The deposit daily in Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the rightfulness of transfers,
redemptions and other shareholder account
transactions, all in conformance with
Service Company's present procedures with
such changes as may be deemed reasonably
appropriate by Service Company or as may be
reasonably approved by or on behalf of Fund.
5
<PAGE>
(7) The maintenance of a current duplicate set
of Fund's essential or required records, as
agreed upon from time to time by Fund and
Service Company, at a secure distant
location, in form available and usable
forthwith in the event of any breakdown or
disaster disrupting its main operation.
7. Indemnification.
----------------
A. Fund shall indemnify and hold Service Company
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has acted in good faith, without
negligence and without willful misconduct.
B. Service Company shall indemnify and hold Fund
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has not acted in good faith, without
negligence and without willful misconduct.
C. In order that the indemnification provisions
contained in this Section 7 shall apply, upon the
assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and
shall keep such party advised with respect to all
developments concerning such claim. The Indemnifying
Party shall be entitled to assume control of the
defense and the negotiations, if any, regarding
settlement of the claim. If the Indemnifying Party
assumes control, the Indemnitee shall have the option
to participate in the defense and negotiations of
such claim at its own expense. The Indemnitee shall
in no event confess, admit to, compromise, or settle
any claim for which the Indemnifying Party may be
required
6
<PAGE>
to indemnify it except with the prior written consent
of the Indemnifying Party, which shall not be
unreasonably withheld.
8. Certain Covenants of Service Company and Fund.
----------------------------------------------
A. All requisite steps will be taken by Fund from time
to time when and as necessary to register the Fund's
shares for sale in all states in which Fund's shares
shall at the time be offered for sale and require
registration. If at any time Fund receives notice of
any stop order or other proceeding in any such state
affecting such registration or the sale of Fund's
shares, or of any stop order or other proceeding
under the Federal securities laws affecting the sale
of Fund's shares, Fund will give prompt notice
thereof to Service Company.
B. Service Company hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to Fund for safekeeping of share
certificates, check forms, and facsimile signature
imprinting devices, if any; and for the preparation
or use, and for keeping account of, such
certificates, forms and devices. Further, Service
Company agrees to carry insurance, as specified in
Exhibit B hereto, with insurers reasonably acceptable
to Fund and in minimum amounts that are reasonably
acceptable to Fund, which will not be changed without
the consent of Fund, which consent shall not be
unreasonably withheld, and which will be expanded in
coverage or increased in amounts from time to time if
and when reasonably requested by Fund. If Service
Company determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it
shall promptly so advise Fund in writing. In such
event, Fund shall have the right to terminate this
Agreement upon 30 days notice.
C. To the extent required by Section 31 of the
Investment Company Act of 1940 and Rules thereunder,
Service Company agrees that all records maintained by
Service Company relating to the services to be
performed by Service Company under this Agreement are
the property of Fund and will be preserved and will
be surrendered promptly to Fund on request.
7
<PAGE>
D. Service Company agrees to furnish Fund semi-annual
reports of its financial condition, consisting of a
balance sheet, earnings statement and any other
reasonably available financial information reasonably
requested by Fund. The annual financial statements
will be certified by Service Company's certified
public accountants.
E. Service Company represents and agrees that it will
use all reasonable efforts to keep current on the
trends of the investment company industry relating to
shareholder services and will use all reasonable
efforts to continue to modernize and improve its
system without additional cost to Fund.
F. Service Company will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business hours.
G. If Service Company is prevented from complying,
either totally or in part, with any of the terms or
provisions of this Agreement, by reason of fire,
flood, storm, strike, lockout or other labor trouble,
riot, war, rebellion, accidents, acts of God,
equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the
reasonable control of Service Company, whether
similar to the foregoing matters or not, then upon
written notice to Fund, the requirements of this
Agreement that are affected by such disability, to
the extent so affected, shall be suspended during the
period of such disability; provided, however, that
Service Company shall make reasonable effort to
remove such disability as soon as possible. During
such period, Fund may seek alternate sources of
service without liability hereunder; and Service
Company will use all reasonable efforts to assist
Fund to obtain alternate sources of service. Service
Company shall have no liability to Fund for
nonperformance because of the reasons set forth in
this Section 8.G; but if a disability that, in Fund's
reasonable belief, materially affects Service
Company's ability to perform its obligations under
this Agreement continues for a period of 30 days,
then Fund shall have the right to terminate this
Agreement upon 10 days written notice to Service
Company.
8
<PAGE>
9. Adjustment.
-----------
In case of any recapitalization, readjustment or other change
in the structure of Fund requiring a change in the form of
share certificates, Service Company will issue or register
certificates in the new form in exchange for, or in transfer
of, the outstanding certificates in the old form, upon
receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of
Fund in the new form under the Securities
Act of 1933, and any other applicable
federal or state laws.
(2) To the effect that the issued shares in the
new form are, and all unissued shares will
be when issued, validly issued, fully paid
and non-assessable.
10. Share Certificates.
-------------------
Fund will furnish Service Company with a sufficient supply of
blank share certificates and from time to time will renew such
supply upon the request of Service Company. Such certificates
will be signed manually or by facsimile signatures of the
officers of Fund authorized by law and Fund's Bylaws to sign
share certificates and, if required, will bear the trust seal
or facsimile thereof.
9
<PAGE>
11. Death, Resignation or Removal of Signing Officer.
-------------------------------------------------
Fund will file promptly with Service Company written notice of
any change in the officers authorized to sign share
certificates, written instructions or requests, together with
two signature cards bearing the specimen signature of each
newly authorized officer, all as certified by an appropriate
officer of the Fund. In case any officer of Fund who will have
signed manually or whose facsimile signature will have been
affixed to blank share certificates will die, resign, or be
removed prior to the issuance of such certificates, Service
Company may issue or register such share certificates as the
share certificates of Fund notwithstanding such death,
resignation, or removal, until specifically directed to the
contrary by Fund in writing. In the absence of such direction,
Fund will file promptly with Service Company such approval,
adoption, or ratification as may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and
-----------------------------------------------------------
Bylaws.
-------
Fund will promptly file with Service Company copies of all
material amendments to its Agreement and Declaration of Trust
and Bylaws and Registration Statement made after the date of
this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
------------------------------------------------
At any time Service Company may apply to any officer of Fund
for instructions, and may consult with legal counsel for Fund
at the expense of Fund, or with its own legal counsel at its
own expense, with respect to any matter arising in connection
with the agency; and it will not be liable for any action
taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. Service
Company is authorized to act on the orders, directions or
instructions of such persons as the Board of Trustees of Fund
shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been
signed by the proper person or persons; and Service Company
will not be held to have notice of any change of authority of
any person so authorized by Fund until receipt of written
notice thereof from Fund. Service Company will also be
protected in recognizing share certificates
10
<PAGE>
that it reasonably believes to bear the proper manual or
facsimile signatures of the officers of Fund, and the proper
countersignature of any former Transfer Agent or Registrar, or
of a Co-Transfer Agent or Co-Registrar.
14. Papers Subject to Approval of Counsel.
--------------------------------------
The acceptance by Service Company of its appointment as
Transfer Agent and Dividend Disbursing Agent, and all
documents filed in connection with such appointment and
thereafter in connection with the agencies, will be subject to
the approval of legal counsel for Service Company, which
approval will not be unreasonably withheld.
15. Certification of Documents.
---------------------------
The required copy of the Agreement and Declaration of Trust of
Fund and copies of all amendments thereto will be certified by
the appropriate official of The Commonwealth of Massachusetts;
and if such Agreement and Declaration of Trust and amendments
are required by law to be also filed with a county, city or
other officer or official body, a certificate of such filing
will appear on the certified copy submitted to Service
Company. A copy of the order or consent of each governmental
or regulatory authority required by law for the issuance of
Fund shares will be certified by the Secretary or Clerk of
such governmental or regulatory authority, under proper seal
of such authority. The copy of the Bylaws and copies of all
amendments thereto and copies of resolutions of the Board of
Trustees of Fund will be certified by the Secretary or an
Assistant Secretary of Fund.
16. Records.
--------
Service Company will maintain customary records in connection
with its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph (2)(iv) of
paragraph (b) of Rule 31a-1 under the Investment Company Act
of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
---------------------------------------------------------
Service Company will send periodically to Fund, or to where
designated by the Secretary or an Assistant
11
<PAGE>
Secretary of Fund, all books, documents, and all records no
longer deemed needed for current purposes and share
certificates which have been cancelled in transfer or in
exchange, upon the understanding that such books, documents,
records, and share certificates will not be destroyed by Fund
without the consent of Service Company (which consent will not
be unreasonably withheld), but will be safely stored for
possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
---------------------------------------------------------
A. Service Company will make original issues of share
certificates upon written request of an officer of
Fund and upon being furnished with a certified copy
of a resolution of the Board of Trustees authorizing
such original issue, an opinion of counsel as
outlined in Section 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this Agreement
and any other documents required by Section 1 or 9 of
this Agreement.
B. Before making any original issue of certificates,
Fund will furnish Service Company with sufficient
funds to pay any taxes required on the original issue
of the shares. Fund will furnish Service Company such
evidence as may be required by Service Company to
show the actual value of the shares. If no taxes are
payable, Service Company will upon request be
furnished with an opinion of outside counsel to that
effect.
C. Shares will be transferred and new certificates
issued in transfer, or shares accepted for redemption
and funds remitted therefor, upon surrender of the
old certificates in form deemed by Service Company
properly endorsed for transfer or redemption
accompanied by such documents as Service Company may
deem necessary to evidence the authority of the
person making the transfer or redemption, and bearing
satisfactory evidence of the payment of any
applicable share transfer taxes. Service Company
reserves the right to refuse to transfer or redeem
shares until it is satisfied that the endorsement or
signature on the certificate or any other document is
valid and genuine, and for that purpose it may
require a guarantee of signature by such persons as
may from time to time be specified in the prospectus
12
<PAGE>
related to such shares or otherwise authorized by
Fund. Service Company also reserves the right to
refuse to transfer or redeem shares until it is
satisfied that the requested transfer or redemption
is legally authorized, and it will incur no liability
for the refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service
Company may, in effecting transfers or redemptions,
rely upon Simplification Acts or other statutes which
protect it and Fund in not requiring complete
fiduciary documentation.
D. When mail is used for delivery of share certificates,
Service Company will forward share certificates in
"nonnegotiable" form as provided by Fund by first
class mail, all such mail deliveries to be covered
while in transit to the addressee by insurance
arranged for by Service Company.
E. Service Company will issue and mail subscription
warrants and certificates provided by Fund and
representing share dividends, exchanges or split-ups,
or act as Conversion Agent upon receiving written
instructions from any officer of Fund and such other
documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from
an officer of Fund and such other documents as
Service Company may deem necessary.
G. Service Company may issue new certificates in place
of certificates represented to have been lost,
destroyed, stolen or otherwise wrongfully taken, upon
receiving indemnity satisfactory to Service Company,
and may issue new certificates in exchange for, and
upon surrender of, mutilated certificates. Any such
issuance shall be in accordance with the provisions
of law governing such matter and any procedures
adopted by the Board of Trustees of the Fund of which
Service Company has notice.
H. Service Company will supply a shareholder's list to
Fund properly certified by an officer of Service
Company for any shareholder meeting upon receiving a
request from an officer of Fund. It
13
<PAGE>
will also supply lists at such other times as may be
reasonably requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of
Fund, Service Company will address and mail notices
to shareholders.
J. In case of any request or demand for the inspection
of the share books of Fund or any other books of Fund
in the possession of Service Company, Service Company
will endeavor to notify Fund and to secure
instructions as to permitting or refusing such
inspection. Service Company reserves the right,
however, to exhibit the share books or other books to
any person in case it is advised by its counsel that
it may be held responsible for the failure to exhibit
the share books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
--------------------------------------------------
A. Service Company will, at the expense of Fund, provide
a special form of check containing the imprint of any
device or other matter desired by Fund. Said checks
must, however, be of a form and size convenient for
use by Service Company.
B. If Fund wants to include additional printed matter,
financial statements, etc., with the dividend checks,
the same will be furnished to Service Company within
a reasonable time prior to the date of mailing of the
dividend checks, at the expense of Fund.
C. If Fund wants its distributions mailed in any special
form of envelopes, sufficient supply of the same will
be furnished to Service Company but the size and form
of said envelopes will be subject to the approval of
Service Company. If stamped envelopes are used, they
must be furnished by Fund; or, if postage stamps are
to be affixed to the envelopes, the stamps or the
cash necessary for such stamps must be furnished by
Fund.
D. Service Company will maintain one or more deposit
accounts as Agent for Fund, into which the funds for
payment of dividends, distributions, redemptions or
other disbursements provided for hereunder will be
deposited, and against which checks will be drawn.
14
<PAGE>
20. Termination of Agreement.
-------------------------
A. This Agreement may be terminated by either party upon
sixty (60) days prior written notice to the other
party.
B. Fund, in addition to any other rights and remedies,
shall have the right to terminate this Agreement
forthwith upon the occurrence at any time of any of
the following events:
(1) Any interruption or cessation of operations
by Service Company or its assigns which
materially interferes with the business
operation of Fund.
(2) The bankruptcy of Service Company or its
assigns or the appointment of a receiver for
Service Company or its assigns.
(3) Any merger, consolidation or sale of
substantially all the assets of Service
Company or its assigns.
(4) The acquisition of a controlling interest in
Service Company or its assigns, by any
broker, dealer, investment adviser or
investment company except as may presently
exist.
(5) Failure by Service Company or its assigns to
perform its duties in accordance with this
Agreement, which failure materially
adversely affects the business operations of
Fund and which failure continues for thirty
(30) days after written notice from Fund.
(6) The registration of Service Company or its
assigns as a transfer agent under the
Securities Exchange Act of 1934 is revoked,
terminated or suspended for any reason.
C. In the event of termination, Fund will promptly pay
Service Company all amounts due to Service Company
hereunder. Upon termination of this Agreement,
Service Company shall deliver all shareholder and
account records pertaining to Fund either to Fund or
as directed in writing by Fund.
15
<PAGE>
21. Assignment.
-----------
A. Neither this Agreement nor any rights or obligations
hereunder may be assigned by Service Company without
the written consent of Fund; provided, however, no
assignment will relieve Service Company of any of its
obligations hereunder.
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of
and be binding upon the parties and their respective
successors and assigns.
C. Service Company is authorized by Fund to use the
system services of DST Systems, Inc. and the system
and other services, including data entry, of
Administrative Management Group, Inc.
22. Confidentiality.
----------------
A. Except as provided in the last sentence of Section
18.J hereof, or as otherwise required by law, Service
Company will keep confidential all records of and
information in its possession relating to Fund or its
shareholders or shareholder accounts and will not
disclose the same to any person except at the request
or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other
financial records (other than statements and records
relating solely to Fund's business dealings with
Service Company) and all manuals, systems and other
technical information and data, not publicly
disclosed, relating to Service Company's operations
and programs furnished to it by Service Company
pursuant to this Agreement and will not disclose the
same to any person except at the request or with the
consent of Service Company. Notwithstanding anything
to the contrary in this Section 22.B, if an attempt
is made pursuant to subpoena or other legal process
to require Fund to disclose or produce any of the
aforementioned manuals, systems or other technical
information and data, Fund shall give Service Company
prompt notice thereof prior to disclosure or
production so that Service Company may, at its
expense, resist such attempt.
16
<PAGE>
23. Survival of Representations and Warranties.
-------------------------------------------
All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
--------------
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state (except as to Section 24.G hereof which shall
be governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust which is on
file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and
trustee liability contained therein. This Agreement
has been executed by and on behalf of Fund by its
representatives as such representatives and not
individually, and the
17
<PAGE>
obligations of Fund hereunder are not binding upon
any of the Trustees, officers or shareholders of the
Fund individually but are binding upon only the
assets and property of Fund. With respect to any
claim by Service Company for recovery of that portion
of the compensation and expenses (or any other
liability of Fund arising hereunder) allocated to a
particular Portfolio, whether in accordance with the
express terms hereof or otherwise, Service Company
shall have recourse solely against the assets of that
Portfolio to satisfy such claim and shall have no
recourse against the assets of any other Portfolio
for such purpose.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the day and year
first set forth above.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund ATTEST:
By: /s/Mark S. Casady /s/Maureen E. Kane
----------------- ------------------
Mark S. Casady Title: Ass't Secretary
President
KEMPER SERVICE COMPANY ATTEST:
By: /s/Robert W. Ciarlelli /s/Walter R. Randall
---------------------- --------------------
Title: Asst. Secretary
TITLE: Sr. V.P.
--------
18
EXHIBIT A
TRANSFER AGENCY FEE SCHEDULE
KEMPER SERVICE COMPANY
A & C SHARES B SHARES
------------ --------
Annual Open Account Fees:
Non-Daily Dividend Fund $6.00 $6.00
CDSC Account Fee N/A 2.25
Non-monetary Transaction Fee 2.00 2.00
Annual Closed Account Fee 6.00 6.00
New Account Fee 4.00 4.00
Transaction Based Fees
(per transaction):
Purchase or Redemption of
Shares Transaction Fee 1.25 1.25
Automated Transaction Fee 0.50 0.50
Dividend Transaction Fee 0.40 0.40
Audio Response 0.15 0.15
<PAGE>
EXHIBIT B
---------
INSURANCE COVERAGE
------------------
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
20
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.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The Commonwealth
<PAGE>
of Massachusetts.
(2) With respect to the status of all shares of
Fund covered by this appointment under the
Securities Act of 1933, and any other
applicable federal or state statute.
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable.
2. Certain Representations and Warranties of Service Company.
Service Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and
in good standing under the laws of the State of
Delaware.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate action has been taken to
authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
3. Certain Representations and Warranties of Fund. Fund
represents and warrants to Service Company that:
A. It is a business trust duly organized and existing
and in good standing under the laws of The
Commonwealth of Massachusetts.
B. It is an investment company registered under the
2
<PAGE>
Investment Company Act of 1940.
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
canceling share certificates, maintaining all
shareholder
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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.
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
6
<PAGE>
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 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.
7
<PAGE>
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 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
8
<PAGE>
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.
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.
9
<PAGE>
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 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
10
<PAGE>
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.
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.
11
<PAGE>
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 Canceled 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
canceled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates
will not be destroyed by Fund without the consent of Service
Company (which consent will not be unreasonably withheld), but
will be safely stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of
Fund and upon being furnished with a certified copy
of a resolution of the Board of Trustees authorizing
such original issue, an opinion of counsel as
outlined in Section 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this Agreement
and any other documents required by Section 1 or 9 of
this Agreement.
B. Before making any original issue of certificates,
Fund will furnish Service Company with sufficient
funds to pay any taxes required on the original issue
of the shares. Fund will furnish Service Company such
evidence as may be required by Service Company to
show the actual value of the shares. If no taxes are
payable, Service Company will upon request be
furnished with an opinion of outside counsel to that
effect.
12
<PAGE>
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.
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
13
<PAGE>
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 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
14
<PAGE>
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.
(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.
15
<PAGE>
(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 and will not
disclose the same to any person except at the request
or with the consent of Fund.
16
<PAGE>
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.
17
<PAGE>
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust which is on
file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and
trustee liability contained therein. This Agreement
has been executed by and on behalf of Fund by its
representatives as such representatives and not
individually, and the obligations of Fund hereunder
are not binding upon any of the Trustees, officers or
shareholders of the Fund individually but are binding
upon only the assets and property of Fund. With
respect to any claim by Service Company for recovery
of that portion of the compensation and expenses (or
any other liability of Fund arising hereunder)
allocated to a particular Portfolio, whether in
accordance with the express terms hereof or
otherwise, Service Company shall have recourse solely
against the assets of that Portfolio to satisfy such
claim and shall have no recourse against the assets
of any other Portfolio for such purpose.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the day and year
first set forth above.
KEMPER SECURITIES TRUST, on behalf of
18
<PAGE>
Kemper Small Cap Relative Value Fund ATTEST:
By:/s/Mark S. Casady /s/Maureen Kane
------------------------------ ----------------------------
Mark S. Casady Title: Asst Secretary
President
KEMPER SERVICE COMPANY ATTEST:
By:/s/Michael J. Curran /s/Maureen Kane
----------------------------- ----------------------------
TITLE: President Title: Ass't Secretary
--------------------------
19
<PAGE>
EXHIBIT B
---------
INSURANCE COVERAGE
------------------
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations) Provides indemnity for
the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
20
EXHIBIT A
TRANSFER AGENCY FEE SCHEDULE
KEMPER SERVICE COMPANY
A & C SHARES B SHARES
------------ --------
Annual Open Account Fees:
Non-Daily Dividend Fund $6.00 $6.00
CDSC Account Fee N/A 2.25
Non-monetary Transaction Fee 2.00 2.00
Annual Closed Account Fee 6.00 6.00
New Account Fee 4.00 4.00
Transaction Based Fees
(per transaction):
Purchase or Redemption of
Shares Transaction Fee 1.25 1.25
Automated Transaction Fee 0.50 0.50
Dividend Transaction Fee 0.40 0.40
Audio Response 0.15 0.15
<PAGE>
EXHIBIT B
---------
INSURANCE COVERAGE
------------------
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
20
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 30th day of January, 1998 between Kemper
Securities Trust (the "Fund"), on behalf of Kemper U.S. Growth and Income Fund
(hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in New York, New York,
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund on behalf of
the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's investment
adviser, custodian or transfer agent and/or books and records
maintained by all other service providers necessary for the
Fund to conduct its business as a registered open-end
management investment company. All such books and records
shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection,
upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
<PAGE>
the net asset value per share, the public offering price
and/or its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a
2
<PAGE>
certificate, letter or other instrument signed by an authorized officer
of the Fund or any other person authorized by the Fund's Board of
Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all
3
<PAGE>
other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper U.S. Growth and Income Fund
345 Park Avenue
New York, New York 10154
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
4
<PAGE>
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund
By /s/Mark S. Casady
-------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
-------------------------------
John R. Hebble
5
<PAGE>
FUND ACCOUNTING FEE SCHEDULE
SCUDDER FUND ACCOUNTING CORPORATION
Fund Accounting Services - Maintain and preserve accounts, books, records and
other documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 and Rules 31a-1 and 31a-2. Record the current day's trading
activity and such other proper bookkeeping entries as are necessary for
determining that day's net asset value. Calculate net asset value.
I. Annual Fees
Domestic Equity Funds
Fund Net Assets Annual
Fee
------------------------ --------------------
First $150 Million 2.50 Basis Points
Next $850 Million 0.75 Basis Points
Excess - Over $1 billion 0.45 Basis Points
A minimum monthly fee of $3,125 will be applied.
II. Multiple Class Portfolios
For any class in excess of one, each portfolio will incur a 33%
surcharge on the annual fee.
III. Holdings Charge
For each issue maintained -- monthly charge $7.50
IV. Portfolio Trades
Money Market Instruments $5.00
Domestic Fixed Income Securities $12.50
Domestic Equity Securities $12.50
Options, Futures and Forward Contracts $25.00
Foreign Equity and Fixed Income Securities $25.00
Foreign Currency Options and Futures Contracts $35.00
Foreign Options and Futures Contracts $35.00
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.
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
<PAGE>
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 Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a
2
<PAGE>
certificate, letter or other instrument signed by an authorized officer
of the Fund or any other person authorized by the Fund's Board of
Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all
3
<PAGE>
other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper U.S. Growth and Income Fund
345 Park Avenue
New York, New York 10154
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
4
<PAGE>
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
KEMPER SECURITIES TRUST, on behalf of
Kemper Small Cap Relative Value Fund
By:/s/Mark S. Casady
------------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
------------------------------------
John R. Hebble
5
<PAGE>
FUND ACCOUNTING FEE SCHEDULE
SCUDDER FUND ACCOUNTING CORPORATION
Fund Accounting Services - Maintain and preserve accounts, books, records and
other documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 and Rules 31a-1 and 31a-2. Record the current day's trading
activity and such other proper bookkeeping entries as are necessary for
determining that day's net asset value. Calculate net asset value.
I. Annual Fees
Domestic Equity Funds
Fund Net Assets Annual
Fee
------------------------ --------------------
First $150 Million 2.50 Basis Points
Next $850 Million 0.75 Basis Points
Excess - Over $1 billion 0.45 Basis Points
A minimum monthly fee of $3,125 will be applied.
II. Multiple Class Portfolios
For any class in excess of one, each portfolio will incur a 33%
surcharge on the annual fee.
III. Holdings Charge
For each issue maintained -- monthly charge $7.50
IV. Portfolio Trades
Money Market Instruments $5.00
Domestic Fixed Income Securities $12.50
Domestic Equity Securities $12.50
Options, Futures and Forward Contracts $25.00
Foreign Equity and Fixed Income Securities $25.00
Foreign Currency Options and Futures Contracts $35.00
Foreign Options and Futures Contracts $35.00
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>
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.
2
<PAGE>
7. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of 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: /s/Mark S. Casady
----------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: /s/James L. Greenawalt
----------------------
TITLE: President
-------------------
3
<PAGE>
APPENDIX I
KEMPER SECURITIES TRUST
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
KEMPER SECURITIES TRUST, on behalf of
Kemper Small Cap Relative Value Fund,
By: /s/Mark S. Casady
----------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: /s/James L. Greenawalt
----------------------
TITLE: President
-------------------
Dated: May 6, 1998
4
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 of our report on Kemper U.S. Growth and Income Fund dated November 17, 1998
in the Registration Statement (Form N-1A) of Kemper Securities Trust and its
incorporation by reference in the related Prospectus and Statement of Additional
Information of Kemper Equity Funds/Value Style, filed with the Securities and
Exchange Commission in this Post-Effective Amendment No. 4 to the Registration
Statement under the Securities Act of 1933 (File No. 333-42335) and in this
Amendment No. 5 to the Registration Statement under the Investment Company Act
of 1940 (File No. 811-08393).
ERNST & YOUNG LLP
Boston, Massachusetts
January 29, 1999
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 of our report on Kemper Small Cap Relative Value Fund dated November 17,
1998 in the Registration Statement (Form N-1A) of Kemper Securities Trust and
its incorporation by reference in the related Prospectus and Statement of
Additional Information of Kemper Equity Funds/Value Style, filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 4 to the
Registration Statement under the Securities Act of 1933 (File No. 333-42335) and
in this Amendment No. 5 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-08393).
ERNST & YOUNG LLP
Chicago, Illinois
January 29, 1999
Fund: Kemper Securities Trust (the "Fund")
-----------------------
Series: Kemper U.S. Growth and Income Fund (the "Series")
----------------------------------
Class: Class B (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Fund: Kemper Securities Trust (the "Fund")
-----------------------
Series: Kemper Small Capitalization Relative Value Fund (the "Series")
-----------------------------------------------
Class: Class B (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Fund: Kemper Securities Trust (the "Fund")
----------------------
Series: Kemper U.S. Growth and Income Fund (the "Series")
----------------------------------
Class: Class C (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Fund: Kemper Securities Trust (the "Fund")
-----------------------
Series: Kemper Small Capitalization Relative Value Fund (the "Series")
-----------------------------------------------
Class: Class B (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Fund: Kemper Securities Trust (the "Fund")
-----------------------
Series: Kemper Small Capitalization Relative Value Fund (the "Series")
-----------------------------------------------
Class: Class C (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINDED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001046599
<NAME> KEMPER VALUE SERIES, INC.
<SERIES>
<NUMBER> 051
<NAME> KEMPER SMALL CAP VALUE FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,041,164
<INVESTMENTS-AT-VALUE> 980,141
<RECEIVABLES> 11,168
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 991,341
<PAYABLE-FOR-SECURITIES> 3,099
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,831
<TOTAL-LIABILITIES> 10,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,061,403
<SHARES-COMMON-STOCK> 27,510
<SHARES-COMMON-PRIOR> 33,737
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,969)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (61,023)
<NET-ASSETS> 980,411
<DIVIDEND-INCOME> 13,817
<INTEREST-INCOME> 5,019
<OTHER-INCOME> 0
<EXPENSES-NET> (20,852)
<NET-INVESTMENT-INCOME> (2,016)
<REALIZED-GAINS-CURRENT> (16,112)
<APPREC-INCREASE-CURRENT> (175,453)
<NET-CHANGE-FROM-OPS> (193,581)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (20,159)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,207
<NUMBER-OF-SHARES-REDEEMED> (28,336)
<SHARES-REINVESTED> 902
<NET-CHANGE-IN-ASSETS> (282,733)
<ACCUMULATED-NII-PRIOR> 866
<ACCUMULATED-GAINS-PRIOR> 33,934
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,166
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,852
<AVERAGE-NET-ASSETS> 1,129,603
<PER-SHARE-NAV-BEGIN> 21.83
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> (3.39)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.80
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINDED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> KEMPER SMALL CAP VALUE FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,041,164
<INVESTMENTS-AT-VALUE> 980,141
<RECEIVABLES> 11,168
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 991,341
<PAYABLE-FOR-SECURITIES> 3,099
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,831
<TOTAL-LIABILITIES> 10,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,061,403
<SHARES-COMMON-STOCK> 22,505
<SHARES-COMMON-PRIOR> 19,222
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,969)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (61,023)
<NET-ASSETS> 980,411
<DIVIDEND-INCOME> 13,817
<INTEREST-INCOME> 5,019
<OTHER-INCOME> 0
<EXPENSES-NET> (20,852)
<NET-INVESTMENT-INCOME> (2,016)
<REALIZED-GAINS-CURRENT> (16,112)
<APPREC-INCREASE-CURRENT> (175,453)
<NET-CHANGE-FROM-OPS> (193,581)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (13,801)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,848
<NUMBER-OF-SHARES-REDEEMED> (6,155)
<SHARES-REINVESTED> 590
<NET-CHANGE-IN-ASSETS> (282,733)
<ACCUMULATED-NII-PRIOR> 866
<ACCUMULATED-GAINS-PRIOR> 33,934
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,166
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,852
<AVERAGE-NET-ASSETS> 1,129,603
<PER-SHARE-NAV-BEGIN> 21.46
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> (3.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.33
<EXPENSE-RATIO> 2.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINDED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 053
<NAME> KEMPER SMALL CAP VALUE FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,041,164
<INVESTMENTS-AT-VALUE> 980,141
<RECEIVABLES> 11,168
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 991,341
<PAYABLE-FOR-SECURITIES> 3,099
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,831
<TOTAL-LIABILITIES> 10,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,061,403
<SHARES-COMMON-STOCK> 5,261
<SHARES-COMMON-PRIOR> 4,626
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,969)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (61,023)
<NET-ASSETS> 980,411
<DIVIDEND-INCOME> 13,817
<INTEREST-INCOME> 5,019
<OTHER-INCOME> 0
<EXPENSES-NET> (20,852)
<NET-INVESTMENT-INCOME> (2,016)
<REALIZED-GAINS-CURRENT> (16,112)
<APPREC-INCREASE-CURRENT> (175,453)
<NET-CHANGE-FROM-OPS> (193,581)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,288)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,452
<NUMBER-OF-SHARES-REDEEMED> (1,933)
<SHARES-REINVESTED> 116
<NET-CHANGE-IN-ASSETS> (282,733)
<ACCUMULATED-NII-PRIOR> 866
<ACCUMULATED-GAINS-PRIOR> 33,934
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,166
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,852
<AVERAGE-NET-ASSETS> 1,129,603
<PER-SHARE-NAV-BEGIN> 21.51
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> (3.30)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.39
<EXPENSE-RATIO> 2.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINDED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 054
<NAME> KEMPER SMALL CAP VALUE FUND - CLASS I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,041,164
<INVESTMENTS-AT-VALUE> 980,141
<RECEIVABLES> 11,168
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 991,341
<PAYABLE-FOR-SECURITIES> 3,099
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,831
<TOTAL-LIABILITIES> 10,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,061,403
<SHARES-COMMON-STOCK> 505
<SHARES-COMMON-PRIOR> 667
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,969)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (61,023)
<NET-ASSETS> 980,411
<DIVIDEND-INCOME> 13,817
<INTEREST-INCOME> 5,019
<OTHER-INCOME> 0
<EXPENSES-NET> (20,852)
<NET-INVESTMENT-INCOME> (2,016)
<REALIZED-GAINS-CURRENT> (16,112)
<APPREC-INCREASE-CURRENT> (175,453)
<NET-CHANGE-FROM-OPS> (193,581)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (476)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 306
<NUMBER-OF-SHARES-REDEEMED> (491)
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> (282,733)
<ACCUMULATED-NII-PRIOR> 866
<ACCUMULATED-GAINS-PRIOR> 33,934
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,166
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,852
<AVERAGE-NET-ASSETS> 1,129,603
<PER-SHARE-NAV-BEGIN> 22.08
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (3.53)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.13
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
KEMPER MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi-Distribution
System Plan (each a "Fund" and collectively the "Funds") is an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. serves as investment adviser
and Kemper Distributors, Inc. serves as principal underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services
agreement providing for a service fee at an annual rate of up to .25% of average
daily net assets;
WHEREAS, each Fund has established a Multi-Distribution System enabling
each Fund, as more fully reflected in its prospectus, to offer investors the
option of purchasing shares (a) with a front-end sales load (which may vary
among Funds) and a service fee ("Class A shares"); (b) without a front-end sales
load, but subject to a Contingent Deferred Sales Charge ("CDSC") (which may vary
among Funds), a Rule 12b-1 plan providing for a distribution fee, and a service
fee ("Class B shares"); (c) without a front-end sales load, but subject to a
CDSC (applicable to shares purchased on or after April 1, 1996 and which may
vary among Funds), a Rule 12b-1 Plan providing for a distribution fee, and a
service fee ("Class C shares"); and (d) for certain Funds, without a front-end
load, a CDSC, a distribution fee or a service fee ("Class I shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under
the 1940 Act, hereby adopts this Multi-Distribution System Plan as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific
<PAGE>
class; (ii) Securities and Exchange Commission registration fees incurred by a
specific class; (iii) litigation or other legal expenses relating to a specific
class; (iv) board member fees or expenses incurred as a result of issues
relating to a specific class; and (v) accounting expenses relating to a specific
class; (e) the voting rights related to any Rule 12b-1 Plan affecting a specific
class of shares; (f) conversion features; (g) exchange privileges; and (h) class
names or designations. Any additional incremental expenses not specifically
identified above that are subsequently identified and determined to be properly
applied to one class of shares of the Fund (or a series) shall be so applied
upon approval by a majority of the members of the Fund's board, including a
majority of the board members who are not interested persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or series)
at the relative net asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares issued
in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall convert
to Class A shares seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991. Class B shares issued upon
reinvestment of income and capital gain dividends and other distributions will
be converted to Class A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of another Fund, or with
money market fund shares as described in the applicable prospectus. Exchanges
will comply with all applicable provisions
2
<PAGE>
of Rule 11a-3 under the 1940 Act. For purposes of calculating the time period
remaining on the conversion of Class B shares to Class A shares, Class B shares
received on exchange retain their original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount;
except that any distribution fees, service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Article III, Section 26,
of the Conduct Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's board, including a majority of the board members
who are not interested persons of the Fund.
Any open-end investment company may establish a Multi-Distribution
System and adopt this Multi-Distribution System Plan by approval of a majority
of the members of any such company's governing board, including a majority of
the board members who are not interested persons of such company.
For use on or after: April 1, 1996
3
