Filed electronically with the Securities and Exchange Commission
on February 26, 1998
File No. 333-43815
File No. 811-08599
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
Kemper Equity Trust
(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, IL 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, the
Registrant hereby elects to register an indefinite number of shares of
beneficial interest, $.01 par value.
<PAGE>
KEMPER EQUITY TRUST
KEMPER-DREMAN FINANCIAL SERVICES FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
PART A
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis SUMMARY
SUMMARY OF EXPENSES
3. Condensed Financial NOT APPLICABLE
Information
4. General Description of INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Registrant SUMMARY
CAPITAL STRUCTURE
5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other SUMMARY
Securities INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
DIVIDENDS, DISTRIBUTIONS AND TAXES
PURCHASE OF SHARES
7. Purchase of Securities Being PURCHASE OF SHARES
Offered SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
8. Redemption or Repurchase SUMMARY
REDEMPTION OR REPURCHASE OF SHARES
9. Pending Legal Proceedings NOT APPLICABLE
2
<PAGE>
KEMPER EQUITY TRUST
KEMPER-DREMAN FINANCIAL SERVICES FUND
(continued)
PART B
Item No. Item Caption Caption in Statement of
Additional Information
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History NOT APPLICABLE
13. Investment Objectives and INVESTMENT RESTRICTIONS
Policies INVESTMENT POLICIES AND TECHNIQUES
14. Management of the Fund OFFICERS AND TRUSTEES
REMUNERATION
15. Control Persons and Principal OFFICERS AND TRUSTEES
Holders of Securities
16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
18. Capital Stock and Other INVESTMENT MANAGER AND UNDERWRITER
Securities
19. Purchase, Redemption and PURCHASE AND REDEMPTION OF SHARES
Pricing of Securities Being
Offered
20. Tax Status DIVIDENDS AND TAXES
21. Underwriters INVESTMENT MANAGER AND UNDERWRITER
22. Calculation of Performance Data PERFORMANCE
23. Financial Statements NOT APPLICABLE
</TABLE>
3
<PAGE>
Table of Contents
-------------------------------------
Summary
-------------------------------------
Summary of Expenses
-------------------------------------
Investment Objective, Policies and
Risk Factors
-------------------------------------
Investment Manager and Underwriter
-------------------------------------
Dividends, Distributions and Taxes
-------------------------------------
Net Asset Value
-------------------------------------
Purchase of Shares
-------------------------------------
Redemption or Repurchase of Shares
-------------------------------------
Special Features
-------------------------------------
Performance
-------------------------------------
Fund Organization and Capital
Structure
-------------------------------------
This prospectus contains concisely the information about Kemper-Dreman Financial
Services Fund (the "Fund"), a diversified series of Kemper Equity Trust ("KET"),
an open-end management investment company, that a prospective investor should
know before investing and should be retained for future reference. A Statement
of Additional Information, which contains additional information about the Fund
and KET, dated March 2, 1998, has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated herein by reference. It is available
upon request without charge from the Fund at the address or telephone number on
this cover or the firm from which this prospectus was received. It is also
available along with other related materials on the SEC's Internet Web Site
(http://www.sec.gov).
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of principal.
[KEMPER FUND LOGO]
Kemper-Dreman
Financial Services Fund
PROSPECTUS DATED March 2, 1998
KEMPER EQUITY TRUST
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
The investment objective of Kemper-Dreman Financial Services Fund is to provide
long-term capital appreciation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY
INVESTMENT OBJECTIVE. The Kemper-Dreman Financial Services Fund (the "Fund"), a
diversified series of Kemper Equity Trust ("KET"), an open-end management
investment company, seeks long-term capital appreciation by investing primarily
in common stocks and other equity securities of companies in the financial
services industry believed by the Fund's investment manager to be undervalued.
RISK FACTORS. The Fund's risks are determined by the nature of the securities
held and the portfolio management strategies used by the investment manager. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time. For a more complete
discussion of risks involved in an investment in the Fund, see "Special Risk
Factors."
There is no assurance that the investment objective of the Fund will be
achieved. The return and net asset value of the Fund will fluctuate.
Concentration by the Fund in investments in the financial services industry
creates greater risk than investment across various industries since the
financial, economic, and business developments affecting issuers in such
industry may have a greater effect on the Fund than if it had not concentrated
its assets in the financial services industry. Foreign investments by the Fund
involve risk and opportunity considerations not typically associated with
investing in U.S. companies. The U.S. Dollar value of a foreign security tends
to decrease when the value of the U.S. Dollar rises against the foreign currency
in which the security is denominated and tends to increase when the value of the
U.S. Dollar falls against such currency. Thus, the U.S. Dollar value of foreign
securities in the Fund's portfolio, and the Fund's net asset value, may change
in response to changes in currency exchange rates even though the value of the
foreign securities in local currency terms may not have changed. While the
Fund's investments in foreign securities will principally be in developed
countries, the Fund may invest a small portion of its assets in developing or
"emerging" markets, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A small portion of the assets of the Fund may
be invested in lower rated or unrated high yield bonds, which entail greater
risk of loss of principal and interest than higher rated fixed-income
securities. There are special risks associated with options, financial futures
and foreign currency transactions and other derivatives and there is no
assurance that use of those investment techniques will be successful. See
"Investment Objective, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. The Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares Offered at net asset value plus a maximum sales charge of
5.75% of the offering price. Reduced sales charges apply to
purchases of $50,000 or more. Class A shares purchased at
net asset value under the "Large Order NAV Purchase
Privilege" may be subject to a 1% contingent deferred sales
charge if redeemed within one year of purchase and a 0.50%
contingent deferred sales charge if redeemed within the
second year of purchase.
Class B Shares Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge that
declines from 4% to zero on certain redemptions made
withinapplied to the value of shares redeemed within six
years of purchase. The contingent preferred sales charge is
computed at the folllowing rates:
Contingent Deferred
Year of Redemption After Purchase Sales Charge
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
<PAGE>
Class C Shares Offered at net asset value without an initial sales charge,
but subject to a Rule 12b-1 distribution fee and a 1%
contingent deferred sales charge on redemptions made within
one year of purchase. Class C shares do not convert into any
other class.
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment for each class is $1,000 and
investments thereafter must be for at least $100. Shares are redeemable at net
asset value, which may be more or less than original cost, subject to any
applicable contingent deferred sales charge. See "Purchase of Shares" and
"Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for the Fund. The Adviser is paid
monthly an investment management fee by the Fund based upon average daily net
assets of the Fund at an annual rate ranging from 0.75% to 0.62%. Dreman Value
Management, L.L.C. (the "Sub-Adviser") serves as sub-adviser for the Fund. The
Sub-Adviser is paid by the Adviser an investment management fee based upon the
average daily net assets of the Fund at an annual rate ranging from 0.24% to
0.198%. Kemper Distributors, Inc. ("KDI") is principal underwriter and
administrator for the Fund. For each of Class B shares and Class C shares of the
Fund, KDI receives a Rule 12b-1 distribution fee of 0.75% of average daily net
assets of each such class. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under an administrative services agreement with
KDI. The Fund pays an administrative services fee at an annual rate of up to
0.25% of average daily net assets of each of Class A, B and C shares of the
Fund, which KDI pays to financial services firms. See "Investment Manager and
Underwriter."
DIVIDENDS. The Fund normally distributes semi-annually dividends of net
investment income. Any net realized short-term and long-term capital gains for
the Fund are distributed at least annually. Income and capital gain dividends of
the Fund are automatically reinvested in additional shares of the same class of
shares of the Fund, without a sales charge, unless the investor makes an
election otherwise. See "Dividends, Distributions and Taxes."
<PAGE>
SUMMARY OF EXPENSES
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<S> <C> <C> <C>
Shareholder Transaction Expenses (1) Class A Class B Class C
--------- ------- -------
Maximum Sales Charge on Purchases (as a
percentage of offering price)............. 5.75%(2) None None
Maximum Sales Charge on Reinvested
Dividends................................... None None None
Redemption Fees............................. None None None
Exchange Fee................................ None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of redemption proceeds).... None(3) 4% (4) 1% (5)
</TABLE>
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. The table does not include the $9.00 quarterly small
account fee. See "Redemption or Repurchase of Shares."
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares--Initial Sales Charge Alternative--Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
"Large Order NAV Purchase Privilege" may be subject to a contingent
deferred sales charge of 1% during the first year and 0.50% during the
second year. See "Purchase of Shares-- Initial Sales Charge Alternative -
Class A Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% during the sixth year.
(5) The Contingent Deferred Sales Charge on Class C Shares applies to
redemptions during the first year after purchase.
Annual Fund Operating Expenses
(estimated as a percentage of average net assets)
Class A Class B Class C
Shares Shares Shares
Management Fees* (after
waiver) 0.60% 0.60% 0.60%
12b-1 Fees (6) (7) None 0.75% 0.75%
Other Expenses 0.76% 0.89% 0.86%
----- ----- -----
Total Fund Operating
Expenses*(after waiver) 1.36% 2.24% 2.21%
===== ===== =====
* For a one year period, the Adviser has agreed to waive a portion of its
management fee amounting to 0.15% of average daily net assets for the Fund. If
the Adviser had not agreed to waive a portion of its management fee, the
annualized expenses of the Fund would be: management fee 0.75% for each class
and total fund operating expenses 1.51%, 2.39% and 2.36% for Class A shares,
Class B shares and Class C sShares, Class B Shares and Class C Shares,
respectively.
(6) Long-term Class B shareholders of the Fund may, as a result of the Fund's
Rule 12b-1 fees, pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, Inc., although KDI believes that this is unlikely because of the
automatic conversion feature described under "Purchase of Shares --
Deferred Sales Charge Alternative -- Class B Shares."
(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
1 year 3 years
------ -------
Class A Shares (8)
------------------
Based on the estimated level of $71 $98
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:
Class B Shares (9)
------------------
Based on the estimated level of $63 $100
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:
You would pay the following $23 $70
expenses on the same investment,
assuming no redemption:
You would pay the following
expenses on
Class C Shares (10)
-------------------
Based on the estimated level of $32 $69
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:
You would pay the following expenses $22 $69
on the same investment, assuming no
redemption:
(8) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the time
of redemption.
(9) Assumes that the shareholder was an owner of shares on the first day of the
first year and the contingent deferred sales charge was applied as follows:
1 year (4%) and 3 years (3%).
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge of 1.00 % was applied during
the first year.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Fund commenced operations on March 2, 1998. "Management Fees" and "Other
Expenses" are estimates for the initial year of operations, and expenses are
shown for only the one-and three- year periods.
Each Example assumes a 5% annual rate of return pursuant to requirements of the
SEC. This hypothetical rate of return is not intended to be representative of
past or future performance of the Fund. The Examples should not be considered to
be a representation of past or future expenses. Actual expenses may be greater
or less than those shown.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objective and
policies. The Fund's returns and net asset value will fluctuate, and there is no
assurance that the Fund will meet its objective. Except as otherwise indicated,
the Fund's investment objective and policies are not fundamental and may be
changed without a vote of shareholders. If there is a change in the Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.
Kemper-Dreman Financial Services Fund (the "Fund"), a diversified series of
Kemper Equity Trust ("KET"), seeks long-term capital appreciation. The Fund
pursues its investment objective by investing primarily in common stocks and
other equity securities of companies in the financial services industry believed
by the investment manager to be undervalued. Securities of a company may be
undervalued as a result of overreaction by investors to unfavorable news about a
company, industry or the stock markets in general or as a result of a market
decline, poor economic conditions, tax-loss selling or actual or anticipated
unfavorable developments affecting a company.
The Fund will concentrate its investments in securities of financial services
companies, including commercial banks, insurance companies, thrifts, consumer
finance companies, commercial finance companies, leasing companies, securities
brokerage firms, asset management firms, and government-sponsored financial
enterprises. The Fund will invest primarily in common stocks of larger, listed
companies with a record of earnings and dividends, low price-earnings ratios,
reasonable returns on equity and sound finances which, in the opinion of the
investment manager, have intrinsic value. The Fund may, however, from time to
time, invest in stocks that pay no dividends. It is anticipated that most stocks
purchased will be listed on the New York Stock Exchange, but the Fund may also
purchase securities listed on other securities exchanges and in the
over-the-counter market.
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. Concentration by the Fund in
investments in the financial services industry creates greater risk than
investment across various industries since the financial, economic, business and
developments affecting issuers in such industry may have a greater effect on the
Fund than if it had not concentrated its assets in the financial services
industry. 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 industries. The Fund is subject to the risk
that a particular group of related stocks will decline in price due to
industry-specific developments. As a result, the Fund should only be considered
a long-term investment and part of a well-diversified portfolio.
INVESTMENTS. Under normal circumstances, the Fund will invest at least 65% of
its assets in equity securities of companies in the financial services industry.
The Fund will invest primarily in equity securities of U.S. companies, but may
invest up to 30% of its assets in foreign companies and in U.S.
Dollar-denominated American Depository Receipts ("ADRs"), which are bought and
sold in the United States. For purposes of the foregoing, a company will be
considered 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. While the Fund invests predominantly in common stocks, the Fund may
purchase other types of equity securities, including preferred stock,
convertible or non-convertible securities, equity investments in partnerships,
joint ventures and other forms of non-corporate investment and rights and
warrants. Securities may be listed on national exchanges or traded
over-the-counter. The Fund may invest up to 35% of its assets in corporate debt
securities, including up to 5% of its assets in securities rated below
investment-grade, i.e., rated below BBB by Standard & Poor's Corporation ("S&P")
and below Baa by Moody's Investor Services, Inc. ("Moody's"), or if unrated
determined to be of equivalent quality by the Fund's investment manager, or in
U.S. Treasury securities, agency and instrumentality obligations and zero coupon
securities. In addition, the Fund may enter into repurchase agreements, loan
portfolio securities, purchase securities on a when-issued basis and, further,
may engage in strategic transactions to attempt to increase stock market
participation or for hedging purposes, to enhance liquidity and manage
transaction costs.
SELECTION OF INVESTMENTS. In order to determine whether a security is
"undervalued," the principal factor considered by the investment manager is the
price-earnings, or P/E, ratio of the security. The investment manager believes
that the risk in owning stocks can be reduced by investing in companies with
sound finances whose current market prices are low in relation to earnings. In
determining whether a company's finances are sound, the investment manager
considers among other things, its cash position and current ratio (current
assets compared to current liabilities).
The investment manager applies quantitative analysis to its research process,
and begins by screening a large number of stocks. Typically, most companies
selected for inclusion in the Fund's portfolio will have market capitalizations
well in excess of $1 billion. In selecting among stocks with low P/E ratios, the
investment manager also considers factors such as the following about the
issuer:
o Financial strength,
o Book-to-market value,
o Five- and ten-year earnings growth rates,
o Five- and ten-year dividend growth rates,
o Five- and ten-year return on equity,
o Size of institutional ownership, and
o Earnings estimates for the next 12 months.
Fundamental analysis is used on companies that initially look promising.
Earnings and cash flow analyses as well as a company's conventional dividend
payout ratio are important to this process. Typically, the Fund will consist of
approximately 25 to 50 stocks. While it is anticipated that under normal
circumstances the Fund will be fully invested, in order to conserve assets
during temporary defensive periods when the investment manager deems it
appropriate, the Fund may invest up to 100% of its assets in cash or
defensive-type securities, such as high-grade debt securities (those rated BBB
or above by S&P, or Baa or above by Moody's), 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. It is impossible to predict for how long such
alternative strategies may be utilized.
The Fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
ADDITIONAL INVESTMENT INFORMATION. It is anticipated that, under normal
circumstances, the portfolio turnover rate for the Fund will not exceed 100%.
Higher portfolio turnover involves correspondingly greater brokerage commissions
or other transaction costs. Higher portfolio turnover may result in the
realization of greater net short-term or long-term capital gains. The Fund will
usually hold stocks acquired for the long-term and will sell stocks when the
investment manager believes that anticipated price appreciation is no longer
probable, alternative investments offer superior appreciation prospects, or the
risk of decline in market prices is greater than the potential for gain.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. The use of options and futures
contracts will tend to increase the portfolio turnover rate of the Fund. To the
extent the investment policies of the Fund result in a relatively high portfolio
turnover rate, it will incur greater expenses and brokerage fees.
SPECIAL RISK FACTORS. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the investment
manager. The following are descriptions of certain risks related to the
investments and techniques that the Fund may use from time to time.
Repurchase Agreements. The 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, the Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through 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 Fund may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Fund's limitations on illiquid securities.
Debt Securities. The Fund may invest in debt securities with varying degrees of
credit quality. High quality bonds (rated AAA or AA by S&P or Aaa or Aa by
Moody's) characteristically have a strong capacity to pay interest and repay
principal. Medium investment-grade bonds (rated A or BBB by S&P or A or Baa by
Moody's) are defined as having adequate capacity to pay interest and repay
principal. In addition, certain medium investment-grade bonds are considered to
have speculative characteristics. The Fund may invest up to 5% of its assets in
debt securities which are rated below investment-grade (hereinafter referred to
as "low-rated securities") or which are unrated, but deemed equivalent to those
rated below investment-grade by the investment manager. These are commonly
referred to as "junk bonds." The lower the ratings of such debt securities, the
greater their risks render them like equity securities. For a more complete
description of the risks of high yield/high risk securities, please refer to the
Fund's Statement of Additional Information.
Illiquid Securities. The Fund may not invest more than 15% of the value of its
net assets in illiquid securities which may include securities for which there
is not an active trading market, or which have resale restrictions. Such
securities may have been acquired through private placements (transactions in
which the securities acquired have not been registered with the SEC). These
illiquid securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price. Some restricted securities purchased by the
Fund, however, may be considered liquid despite resale restrictions since they
can be sold to other qualified institutional buyers under a rule of the SEC
(Rule 144A). Upon approval from KET's Board of Trustees, the Adviser may
determine which Rule 144A securities will be considered liquid. 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.
Common Stocks. Common stock is issued by companies to raise cash for business
purposes and represents a proportionate interest in the issuing companies.
Therefore, the 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 and may even become
valueless. 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. The Fund may invest in convertible securities which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The Fund may
invest in 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. The Fund may
be required to permit the issuer of a convertible security to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Thus, the Fund may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on this Fund's ability to
achieve its investment objective.
Foreign Securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the yield from debt securities. They may also entail certain
other risks, such as the possibility of one or more of the following: imposition
of dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization, military coups or other
adverse political or economic developments; less governmental supervision and
regulation of securities exchanges, brokers and listed companies and banks; and
the difficulty of enforcing obligations in other countries. Further, it may be
more difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Certain markets may require
payment for securities before delivery. The Fund's ability and decisions to
purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility of currencies and repatriation of assets. Some
countries restrict the extent to which foreigners may invest in their securities
markets.
Changes in the value of these currencies against the U.S. dollar will result in
corresponding changes in the U.S. dollar value of the Fund's assets denominated
in those currencies. Many of the risks described above relating to foreign
securities generally will be greater for emerging markets than for developed
countries.
Some foreign countries also may have managed currencies, which are not free
floating against the U.S. dollar. In addition, there is risk that certain
foreign countries may restrict the free conversion of their currencies into
other currencies. Further, it generally will not be possible to eliminate the
Fund's foreign currency risk through hedging. Any devaluations in the currencies
in which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
Depository Receipts. For many foreign securities, there are U.S.
Dollar-denominated ADRs, which 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 of 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.
Securities Loans. The Fund is authorized to lend its portfolio securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional investment income. The Fund does not intend to
loan securities if as a result more than 5% of its respective net assets would
be on loan.
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, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all of 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 or currency exchange
rate fluctuations, 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 investment manager'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 leveraging 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 investment manager's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund's incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements or the inability to deliver or receive a specified currency. The use
of options and futures transactions entails certain other risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures contracts and options transactions for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.
INVESTMENT POLICIES. The Fund has adopted certain fundamental policies, which
are described in the Statement of Additional Information and cannot be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The investment objective and policies of the Fund that are not
incorporated into any of the fundamental investment policies referred to above
may be changed by the Board of Trustees of the Trust without shareholder
approval.
As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law. In addition, as a matter of fundamental policy, the
Fund may not make loans except through the lending of portfolio securities, the
purchase of debt instruments or interests in indebtedness or through repurchase
agreements. Further, as a matter of non-fundamental policy, the Fund may not
borrow money in an amount greater than 5% of total assets, except for temporary
or emergency purposes, although the Fund may engage up to 5% of total assets in
reverse repurchase agreements or dollar rolls.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. The Fund retains the investment management firm of Scudder
Kemper Investments, Inc., a Delaware corporation, to manage the Fund's daily
investment and business affairs subject to the policies established by KET's
Board of Trustees and pursuant to an Investment Management Agreement dated March
2, 1998. The Trustees have overall responsibility for the management of the Fund
under Massachusetts law.
Scudder Kemper Investments, Inc., an investment counsel firm, acts as investment
manager to the Fund. This organization, which resulted from the combination of
the businesses of Scudder, Stevens & Clark, Inc. ("Scudder") and Zurich Kemper
Investments, Inc., ("Kemper"), is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established as a
partnership in 1919 and reorganized into a corporation in 1985. Since launching
its first fund in 1948, Kemper had grown into one of the industry's leading
mutual fund companies. On December 31, 1997, Kemper's parent company, Zurich
Insurance Company ("Zurich"), acquired a majority interest in Scudder and
combined the businesses of the two organizations to create a single global
money-management firm, Scudder Kemper Investments, Inc., which has more than
$200 billion under management.
Under the Investment Management Agreement with the Adviser, the Fund is
responsible for all of its expenses, including fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; taxes and governmental fees; the fees and expenses of
the transfer agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of KET who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians.
The Fund pays the Adviser an investment management fee at the annual rate of
0.75% of the first $250 million of the Fund's average daily net assets, 0.72% of
the average daily net assets between $250 million and $1 billion, 0.70% of
average daily net assets between $1 billion and $2.5 billion, 0.68% of average
daily net assets between $2.5 billion and $5 billion, 0.65% of average daily net
assets between $5 billion and $7.5 billion, 0.64% of average daily net assets
between $7.5 billion and $10 billion, 0.63% of average daily net assets between
$10 billion and $12.5 billion and 0.62% of the Fund's average daily net assets
over $12.5 billion. The fee is payable monthly, provided that the Fund will make
such interim payments as may be requested by the Adviser not to exceed 75% of
the amount of the fee then accrued on the books of the Fund and unpaid. All of
the Fund's expenses are paid out of gross investment income. To the extent that
the management fee paid to the Adviser is at least 0.75%, it is higher than that
paid by most other mutual funds. The expenses of the Fund, and of other
investment companies investing in foreign securities, can be expected to be
higher than for investment companies investing primarily in domestic securities
since the costs of operation are higher, including custody and transaction costs
for foreign securities and investment management fees.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
Many computers currently are unable to correctly process date-related
information which spans the 21st century. The inability to successfully address
this issue could result in interruptions in the Fund's business and have a
material adverse effect on the Fund's operations. The Adviser and its affiliates
have commenced a review of their computer-based systems, as well as those of
third party service providers, with a view toward assessing whether or not the
transition to the 21st century will have any material impact on the ability of
the Adviser to conduct its business. The process involves identifying the
systems affected, monitoring the process of system upgrades, as appropriate,
against planned time lines, and developing contingency plans in order to meet
identified material risks.
Dreman Value Management, L.L.C. (the "Sub-Adviser"), Three Harding Road, Red
Bank, New Jersey 07701, is the sub-adviser for the Fund.
Under the terms of the sub-advisory agreement between the Adviser and the
Sub-Adviser, the Sub-Adviser manages the investment and reinvestment of the
Fund's assets in accordance with the investment objective, policies and
limitations of the Fund and subject to the supervision of the Adviser and the
Board of Trustees. The Sub-Adviser was formed in April 1997 and is controlled by
David N. Dreman. The Adviser pays the Sub-Adviser for its services a
sub-advisory fee, payable monthly, at the annual rate of .24% of the first $250
million of the Fund's average daily net assets, .23% of the average daily net
assets between $250 million and $1 billion, .224% of average daily net assets
between $1 billion and $2.5 billion, .218% of average daily net assets between
$2.5 billion and $5 billion, .208% of average daily net assets between $5
billion and $7.5 billion, .205% of average daily net assets between $7.5 billion
and $10 billion, .202% of average daily net assets between $10 billion and $12.5
billion and .198% of the Fund's average daily net assets over $12.5 billion.
David N. Dreman is the Fund's portfolio manager. He is the Chairman of the
Sub-Adviser. Mr. Dreman is a pioneer of the philosophy of contrarian investing
(buying what is out of favor) and a leading proponent of the low P/E investment
style. He is a columnist for Forbes and the author of several books on the value
style of investing. He received a Bachelor of Commerce degree from the
University of Manitoba, Winnipeg, Manitoba, Canada.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of
the Adviser, is the principal underwriter and distributor of the Fund's shares
and acts as agent of the Fund in the sale of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. KDI provides for the preparation of advertising
or sales literature and bears the cost of printing and mailing prospectuses to
persons other than shareholders. KDI bears the cost of qualifying and
maintaining the qualification of Fund shares for sale under the securities laws
of the various states 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
to investors. KDI also may provide some of the distribution services.
CLASS A SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of the Fund's Class A shares.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the 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 distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the 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
Class C shares. For periods after the first year, KDI currently pays 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. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charges--Class C Shares."
RULE 12B-1 PLANS. Since the distribution agreement provides for fees payable as
an expense of each of the Class B shares and the Class C shares that are used by
KDI to pay for distribution services for those classes, each agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), which regulates the manner in which an investment company may,
directly or indirectly, bear the expenses of distributing its shares.
If a 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 such
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 a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under a Plan
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of the Fund pursuant to an administrative services
agreement ("administrative agreement"). KDI may enter into related arrangements
with 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. Such administrative services and assistance may include,
but are not limited to, establishing and maintaining shareholder accounts and
records, processing purchase and redemption transactions, answering routine
inquiries regarding the Fund and its special features, and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all of its expenses of
providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreement,
the Fund pays KDI a fee, payable monthly, at the annual rate of up to 0.25% of
average daily net assets of each of Class A, B and C shares of such Fund. KDI
then pays each firm a service fee, normally payable quarterly, at an annual rate
of up to 0.25% of net assets of each of Class A, B and C shares maintained and
serviced by the firm. Firms to which service fees may be paid include affiliates
of KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the Fund accounts maintained and serviced by the firm
commencing in the month following the month of purchase and the fee continues
until terminated by KDI or the Fund. The fees are calculated monthly and paid
quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of each of Class B
and Class C shares of the Fund. 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 each of Class B
and Class C shares maintained and serviced by the firm during such period. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements 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 and it is intended
that KDI will pay all of the administrative services fee that it receives from
the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which a firm provides administrative services as well as, with
respect to Class A shares, the date when shares representing such assets were
purchased. In addition, KDI may, from time to time, from its own resources pay
certain firms additional amounts for ongoing administrative services and
assistance provided to their customers and clients who are shareholders of the
Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund. Kemper Service Company
("Shareholder Service Agent"), an affiliate of the Adviser, serves as transfer
agent and dividend-paying agent of the Fund. For a description of the transfer
agency fees payable to Kemper Service Company, see "Investment Manager and
Underwriter" in the Statement of Additional Information.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee.
PORTFOLIO TRANSACTIONS. The Sub-Adviser places all orders for purchases and
sales of the Fund's securities. Subject to seeking the most favorable net
results, the Sub-Adviser may consider sales of shares of the Fund and other
Funds managed by the Adviser or its affiliates as a factor in selecting
broker-dealers. See "Portfolio Transactions" in the Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund normally distributes semi-annually
dividends of net investment income, and any net realized short-term and
long-term capital gains at least annually. The Fund intends to distribute any
dividends from net investment income and any net realized capital gains after
utilization of capital loss carryforwards, if any, in December to prevent
application of federal excise tax. Additional distributions may be made at a
later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the same class of shares of the Fund. If an investment is
in the form of a retirement plan, all dividends and capital gains distributions
must be reinvested in the shareholder's account.
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 amount for each
class.
Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment date, except that, upon written request
to the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such 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 value of $1,000 in the Fund
distributing the dividends. The Fund 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 of the Fund 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, asset diversification and distribution
requirements annually. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
properly designated net long-term capital gain dividends are taxable to
individual shareholders regardless of how long the shares have been held and
whether received in cash or shares. Long-term capital gain dividends received by
individual shareholders are taxed at a maximum rate of 20% on gains realized by
a Fund from securities held more than 18 months and at a maximum rate of 28% on
gains realized by a Fund from securities held more than 12 months but not more
than 18 months. Dividends declared in October, November or December to
shareholders of record as of a date in one of those months and paid during the
following January are treated as paid on December 31 of the calendar year
declared. A portion of the dividends paid by the Fund may qualify for the
dividends received deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. Thus, investors should
consider the tax implications of buying shares just prior to a dividend. The
price of shares purchased at that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss if held by the shareholder as a capital
asset, and may qualify for reduced tax rates applicable to certain capital
gains, depending upon the shareholder's holding period for the shares. Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of the Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of Fund shares.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in the Fund.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Any amounts so withheld are not an additional
tax, and may be applied against the affected shareholder's U.S. federal income
tax liability. Trustees of qualified retirement plans and 403(b)7 accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from Individual Retirement Accounts ("IRAs") or any part of a
distribution that is transferred directly to another qualified retirement plan,
403(b)(7) account, or IRA. Shareholders should consult with their tax advisers
regarding the 20% withholding requirement.
The Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of the 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.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for trading. The Exchange is scheduled to be closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Portfolio
securities for which market quotations are readily available are generally
valued at market value. All other securities may be valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
PURCHASE OF SHARES
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 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>
<S> <C> <C> <C>
<CAPTION>
Annual 12b-1 Fees
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
Class A Maximum initial sales charge None Initial sales charge waived or
of 5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; declines issuance
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>
(1) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent deferred sales
charge if redeemed within the second year of purchase.
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>
<S> <C> <C> <C> <C>
<CAPTION>
Sales Charge
------------
Allowed to Dealers
As a Percentage As a Percentage of as a Percentage of
Amount of Purchase of Offering Price Net Asset Value* Offering Price
------------------ ----------------- ---------------- --------------
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.
The Fund receives the entire net asset value of all 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 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 re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, 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 investment manager 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. 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. 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.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in such Fund or other Kemper Mutual
Fund 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), 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 the purchase 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 at 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 recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Kemper Mutual
Fund 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 also
applies.
Class A shares of the Fund or of 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 in 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 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 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.
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.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, 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) any trust, pension,
profit-sharing or other benefit plan for only such persons; (d) 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; and (e) 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 shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value through certain
investment advisers registered under the 1940 Act and other financial services
firms that adhere to certain standards established by KDI, including a
requirement that such shares be sold for the benefit of their clients
participating in an investment advisory program under which such clients pay a
fee to the investment adviser or other firm for portfolio management and other
services. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the Fund. The
Fund may also issue Class A shares at net asset value in connection with the
acquisition of the assets of or merger or consolidation with another investment
company, or to shareholders in connection with the investment or reinvestment of
income and capital gain dividends.
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. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding long enough for KDI to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares in a shareholder's Fund account will be converted to Class A
shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Funds listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
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 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 during specified time
periods certain minimum amounts of shares of the Fund, or other Fund
underwritten by KDI.
Orders for the purchase 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 financial services 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 the Fund's 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 Fund's 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 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 Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
SPECIAL PROMOTION. From March 1, 1998 until May 29, 1998 ("Special Offering
Period"), KDI, the principal underwriter for the Fund, intends to re-allow to
dealers the full applicable sales charge with respect to Class A shares of the
Fund purchased during the Special Offering Period (not including shares
purchased at net asset value). KDI also intends to pay to firms an additional
commission of .50% with respect to Class B shares of the Fund purchased during
the Special Offering Period, not including exchanges or other transactions for
which commissions are not paid.
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 applicable Fund with a tax
identification number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require 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"), 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 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 signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the 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 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 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 the Fund for up to seven days
if the Fund or the Shareholder Service Agent 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, although investors can still
redeem by mail. 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 after 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), 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 discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
--------------------------------- ------------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue 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 Internal Revenue
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 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 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 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 March
1998 will be eligible for the second year's charge if redeemed on or after March
1, 1999. 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.
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 the 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 other
Kemper Funds who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares") or 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 as
the case may be, 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 shares of the Fund, the reinvestment in
shares of the Fund may be subject to the "wash sale" rules if made within 30
days of the redemption, resulting in a postponement of the recognition of such
loss for federal income tax purposes. The reinvestment privilege may be
terminated or modified at any time.
REDEMPTION IN KIND. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Trustees may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and 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 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 Value
Fund, Inc., 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+ Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon Fund,
Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Global/International
Series, Inc., Kemper Equity Trust, Kemper Securities Trust and Kemper Aggressive
Growth Fund ("Kemper 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,
Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered a "Kemper Fund" 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 investment, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included for this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the 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--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 the Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in the applicable prospectus. Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
and Investors Cash Trust are available on exchange but only through a financial
services firm having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
CLASS B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper 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 calculating the contingent
deferred sales charge that may be imposed upon the redemption of the Class B
shares received on exchange, amounts exchanged retain their original cost and
purchase date.
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 purposes of determining whether there is a
contingent deferred sales charge that may be imposed upon the redemption of the
Class C shares received by exchange, they retain 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 by exchange through 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, discretion 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 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 Fund that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investor's 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 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 such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the 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 shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (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. A 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 the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount 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 may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) 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, 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 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 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"), Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisers before
establishing a retirement plan.
PERFORMANCE
The Fund may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for each of Class A, Class B and Class C
shares. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a particular
class of the Fund's portfolio for the period referenced, assuming the
reinvestment of all dividends. Thus, these figures reflect the change in the
value of an investment in the Fund during a specified period. Average annual
total return will be quoted for at least the one, five and ten year periods
ending on a recent calendar quarter (or if any such period has not yet elapsed,
at the end of a shorter period corresponding to the life of the Fund for
performance purposes). Average annual total return figures represent the average
annual percentage change over the period in question. Total return figures
represent the aggregate percentage or dollar value change over the period in
question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Financial Services Index, the Standard
& Poor's 500 Composite Stock Price Index, the Russell 1000(R) Index, the Russell
1000(R) Growth Index, the Wilshire Large Company Growth Index, the Wilshire 750
Mid Cap Company Growth Index, the Standard & Poor's/Barra Value Index, Standard
& Poor's/Barra Growth Index, the Russell 1000(R) Value Index, the
Europe/Australia/Far East Index, International Finance Corporation's Latin
America Investable Return Index, the Morgan Stanley Capital International World
Index, the J.P. Morgan Global Traded Bond Index, and the Salomon Brothers World
Government Bond Index. The performance of the Fund may also be compared to the
performance of other mutual funds or mutual fund indices with similar objectives
and policies as reported by independent mutual fund reporting services such as
Lipper Analytical Services, Inc. ("Lipper"). Lipper performance calculations are
based upon changes in net asset value with all dividends reinvested and do not
include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative.
Also, investors may want to compare the historical returns of various
investments, performance indexes of those investments or economic indicators,
including but not limited to stocks, bonds, certificates of deposit, money
market fund and U.S. Treasury obligations. Bank product performance may be based
upon, among other things, the BANK RATE MONITOR National Index(TM) or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC Financial Data Inc.'s Money Fund Report(R) or Money
Market Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund. The relative performance of
growth stocks versus value stocks may also be discussed.
Because some of the Fund's investments are denominated in foreign currencies,
the strength or weakness of the U.S. dollar as against these currencies may
account for part of the Fund's investment performance. Historical information on
the value of the dollar versus foreign currencies may be used from time to time
in advertisements concerning the Fund. Such historical information is not
indicative of future fluctuations in the value of the U.S. dollar against these
currencies. In addition, marketing materials may cite country and economic
statistics and historical stock market performance for any of the countries in
which the Fund invests, including, but not limited to, the following: population
growth, gross domestic product, inflation rate, average stock market
price-earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments and
exchanges.
The Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in 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 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.
The Fund's returns and net asset value will fluctuate. Shares of a class of the
Fund are redeemable by an investor at the then current net asset value of the
class, which may be more or less than original cost. Redemption of Class B
shares and Class C shares may be subject to a contingent deferred sales charge
as described above. Additional information concerning the Fund's performance
appears in the Statement of Additional Information. Additional information about
the Fund's performance also appears in its Annual Report to Shareholders, which
is available without charge from the Fund.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Fund is a series of KET, an open-end management investment company
registered under the 1940 Act. KET was organized as a Massachusetts business
trust on January 6, 1998.
KET may issue an indefinite number of shares of beneficial interest in one or
more series or "Portfolios," all having $.01 par value, which may be divided by
the Board of Trustees into classes of shares. An indefinite number of shares of
beneficial interest have been duly authorized by the Board of Trustees of KET.
Currently, the Fund offers three classes of shares. These are Class A, Class B
and Class C shares. The Board of Trustees may authorize the issuance of
additional classes and additional series or Portfolios if deemed desirable, each
with its own investment objectives, policies and restrictions. Since KET may
offer multiple Portfolios, each is known as a "series company." 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 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 the Fund are fully
paid and nonassessable when issued, are transferable without restriction and
have no preemptive or conversion rights. If shares of more than one Portfolio
are outstanding, shareholders will vote by Portfolio and not in the aggregate or
by class except when voting in the aggregate is required, under the 1940 Act,
such as for the election of trustees or when voting by class is appropriate.
The Fund's activities are supervised by KET's Board of Trustees. KET is not
required to hold and has no current intention of holding annual shareholder
meetings, although special meetings may be called for purposes such as electing
or removing Trustees, changing fundamental investment policies or approving an
investment management contract. Subject to the Declaration of Trust,
shareholders may remove Trustees. Shareholders will be assisted in communicating
with other shareholders in connection with removing a Trustee as if Section
16(c) of the 1940 Act were applicable.
<PAGE>
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
KEF-1 12/96 (Recycled Logo) printed on recycled paper
Kemper-Dreman
Financial Services Fund
March 2, 1998
KEMPER FUNDS LOGO
KEMPER EQUITY TRUST
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
KEMPER-DREMAN FINANCIAL SERVICES 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-Dreman Financial Services Fund
(the "Fund"), a diversified series of Kemper Equity Trust ("KET"). It should be
read in conjunction with the Fund's prospectus dated March 2, 1998. The
prospectus may be obtained without charge from the Fund at the address or
telephone number on this cover or the firm from which this Statement of
Additional Information was received.
---------------
TABLE OF CONTENTS
Page
Investment Restrictions.......................................
Investment Policies and Techniques............................
Portfolio Transactions........................................
Investment Manager and Underwriter............................
Purchase and Redemption of Shares.............................
Dividends, Distributions and Taxes............................
Performance...................................................
Officers and Trustees.........................................
Shareholder Rights............................................
Net Asset Value...............................................
Additional Information........................................
Report of Independent Auditors (February 25, 1998)............
Statement of Net Assets (February 25, 1998)...................
Appendix--Ratings of Fixed Income Investments.................
Scudder Kemper Investments, Inc. acts as the Fund's investment manager and
Dreman Value Management, L.L.C. acts as the Fund's sub-adviser.
DRE-13 (11/97) (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 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.
As a matter of fundamental policy, the Fund has elected to be classified as
a diversified series of a registered open-end management investment company.
The Fund may not, as a fundamental policy:
(a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction
from time to time;
(b) issue senior securities, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
(c) purchase physical commodities or contracts relating to physical
commodities;
(d) engage in the business of underwriting securities issued by others,
except to the extent that a Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities;
(e) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
(f) make loans to other persons except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in
accordance with the Fund's investment objective and policies may be
deemed to be loans; or
(g) concentrate its investments in a particular industry, as that term is
used in the 1940 Act, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time, except that the Fund
will concentrate its investments in the financial services industry.
With regard to Item (e) above, to the extent the Fund holds real estate acquired
as a result of the Fund's ownership of securities such holdings would be subject
to the Fund's non-fundamental investment restriction on illiquid securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
The Fund may not, as a non-fundamental policy which may be changed by the
Trustees without a vote of shareholders:
(1) invest for the purpose of exercising control over management of any
company;
(2) invest its assets in securities of any investment company, except by
open market purchases, including an ordinary broker's commission, or
in connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other
investment companies will be in compliance with the Investment Company
Act of 1940; or
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(3) invest more than 15% of the value of its net assets in illiquid
securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
General. The Fund may engage in options and financial futures and other
derivatives transactions in accordance with its investment objective and
policies. The 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 to
create leveraged exposure in the Fund. The use of futures and options, and the
possible benefits and attendant risks, are discussed below along with
information concerning other investment policies and techniques.
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, currency exchange 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, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(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 or currency exchange rate
fluctuations, 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 the 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 investment manager's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure.
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 investment manager's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund's incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. 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,
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<PAGE>
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, currency 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, currency 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 or currency, 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 performance mechanics, all of 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.
4
<PAGE>
The Fund will only sell OTC options (other than OTC currency 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, currency 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 Standard & Poor's Corporation ("S&P") or P-1 from Moody's
Investor Services, Inc. ("Moody's") or an equivalent rating from any nationally
recognized statistical rating organization ("NRSRO") or, in the case of OTC
currency transactions, are determined to be of equivalent credit quality by the
investment manager. 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, foreign sovereign
debt, 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. None of the Funds will 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, currency 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.
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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 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.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the investment manager.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
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denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the investment manager
considers that the Austrian schilling is correlated to the German deutschemark
(the "D-mark"), the Fund holds securities denominated in schillings and the
investment manager believes that the value of schillings will decline against
the U.S. dollar, the investment manager may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived correlation between various
currencies may not be present or may not be present during the particular time
that the Fund is engaging in proxy hedging. If the Fund enters into a currency
hedging transaction, the Fund will comply with the asset segregation
requirements described below.
Risks Of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency 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 investment manager, 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 investment manager'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, currency 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, to protect against currency fluctuations, 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. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and 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
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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
investment manager 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
investment manager. 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.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks Of Strategic Transactions Outside The U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
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 or
currency. 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 or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets 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.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
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OTC options entered into by the Fund, including those on securities, currency,
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 assets 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.
Other Considerations. As reflected in the prospectus, the Fund may invest a
portion of its assets in fixed income securities that are in the lower rating
categories of recognized rating agencies or are non-rated, commonly referred to
as "junk bonds." These lower rated or non-rated fixed income securities are
considered, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher rating
categories.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also tend to be more sensitive to economic conditions
than are higher rated securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, regarding lower rated bonds may
depress the prices for such securities. These and other factors adversely
affecting the market value of high yield securities will adversely affect the
Fund's net asset value. Although some risk is inherent in all securities
ownership, holders of fixed income securities have a claim on the assets of the
issuer prior to the holders of common stock. Therefore, an investment in fixed
income securities generally entails less risk than an investment in common stock
of the same issuer.
High yield securities frequently are issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or a corporate takeover. Companies that issue such high yielding
securities often are highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with acquiring
the securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or recession, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
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or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently with similar maturities and
credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.
The Fund may from time to time purchase securities on a "when-issued" or
"forward delivery" basis for payment and delivery at a later date. The price of
such securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. At the time of settlement, the
market value of the when-issued or forward delivery securities may be more or
less than the purchase price. The Fund does not believe that its net asset value
or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.
Additional information concerning high yield securities appears under
"Appendix--Ratings of Fixed Income Investments."
PORTFOLIO TRANSACTIONS
Under the sub-advisory agreement between Scudder Kemper Investments, Inc. (the
"Adviser") and Dreman Value Management, L.L.C. (the "Sub-Adviser"), the
Sub-Adviser places all orders for purchases and sales of the 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 the Sub-Adviser. When two or more such clients are simultaneously
engaged in the purchase or sale of the same security through the same trading
facility, the transactions are allocated as to amount and price in a manner
considered equitable to each. Position limits imposed by national securities
exchanges may restrict the number of options the Fund will be able to write on a
particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or future contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases. The Board of Trustees
believes that the benefits of the Sub-Adviser's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.
The Sub-Adviser 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. The Sub-Adviser may be permitted to pay higher brokerage commissions
for research services as described below. Consistent with this policy, orders
for portfolio transactions are placed with broker-dealer firms giving
consideration to the quality, quantity and nature of each firm's professional
services, which include execution, financial responsibility, responsiveness,
clearance procedures, wire service quotations and statistical and other research
information provide to the Fund and the Sub-Adviser. Subject to seeking best
execution of an order, brokerage is allocated on the basis of all service
provided. Any research benefits derived are available for all clients of the
Sub-Adviser. In selecting among firms believed to meet the criteria for handling
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a particular transaction, the Sub-Adviser 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 the Sub-Adviser,
although the Sub-Adviser is not authorized to pay higher commissions to firms
that provide such services, except as described below.
The Sub-Adviser 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 the Sub-Adviser in cash. Subject to Section 28(e)
and procedures adopted by the Board of Trustees of KET, the Fund could pay a
firm that provides research services commissions for effecting a securities
transactions for the Fund in excess of the amount other firms would have charged
for the transaction if the Sub-Adviser 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 the Sub-Adviser'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 the
Sub-Adviser. The sub-advisory fee paid by the Adviser to the Sub-Adviser is not
reduced because these research services are received.
The Trustees for the Fund review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to the Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for the Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective. Under normal investment
conditions, it is anticipated that the portfolio turnover rate in the Fund's
initial fiscal year will not exceed 100%.
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INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc., 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 Adviser's predecessor, Scudder Stevens & Clark, Inc.
("Scudder") entered into an agreement with Zurich Insurance Company ("Zurich")
pursuant to which Scudder and Zurich agreed to form an alliance.
On December 31, 1997, Zurich acquired a majority interest in Scudder, and Zurich
made the business of its subsidiary, Zurich Kemper Investments, Inc., a part of
Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
Pursuant to an investment management agreement (the "Agreement"), the Adviser
acts as the investment adviser of the Fund, 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 trustees or officers of
KET if elected to such positions. The investment management agreement provides
that the Fund pays the charges and expenses of its operations, including the
fees and expenses of the trustees (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 therefor, taxes and
membership dues. KET bears the expenses of registration of its shares with the
SEC, while Kemper Distributors, Inc., 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 Fund's investment management agreement (the "Agreement") between the Trust,
on behalf of the Fund, and the Adviser was approved by the Trustees on January
21, 1998. The Agreement is dated March 2, 1998 and will continue initially in
effect through August 31, 1999 and continues in effect from year to year so long
as its continuation is approved at least annually by (a) a majority of the
trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as trustees of KET, and (b) by the shareholders
or the Board of Trustees of KET. The Agreement may be terminated at any time
upon 60 days notice by either party, or by a majority vote of the outstanding
shares of the Fund, and will terminate automatically upon assignment.
Under the Agreement, the Adviser provides the Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines which securities shall be
purchased for the portfolio of the Fund, which 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 Internal Revenue Code of 1986, as amended (the
"Code") and to the Fund's investment objectives, policies and restrictions and
subject, further, to such policies and instructions as the Trustees may from
time to time establish. The Adviser also advises and assists the officers of the
Fund in taking such steps as are necessary or appropriate to carry out the
decisions of its Trustees and the appropriate committees of the Trustees
regarding the conduct of the business of the Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as a series of 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
12
<PAGE>
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees, officers and
executive employees of KET affiliated with the Adviser and makes available,
without expense to KET, the services of such Trustees, officers and employees of
the Adviser as may duly be elected officers or Trustees of KET, subject to their
individual consent to serve and to any limitations imposed by law, and provides
KET'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 fees and expenses of Trustees,
officers and employees of KET who are not affiliated with the Adviser; the cost
of printing and distributing reports and notices to shareholders; and the fees
and disbursements of custodians. The Fund may arrange to have third parties
assume all or part of the expenses of sale, underwriting and distribution of
shares of the Fund. The Fund is also responsible for its expenses incurred in
connection with litigation, proceedings and claims and the legal obligation it
may have to indemnify its officers and Trustees with respect thereto.
The Agreement expressly provides that the Adviser shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, the Trustees of KET who are not "interested persons"
of KET have been represented by Vedder, Price, Kaufman & Kammholz, as
independent counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may enter into
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of KET may have dealings with KET as principals
in the purchase or sale of securities, except as individual subscribers or
holders of shares of the Fund.
Employees of the Adviser and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Adviser's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as those of 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.
The current investment management fee rate paid by the Fund is in the prospectus
under "Investment Manager and Underwriter."
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SUB-ADVISER. Dreman Value Management, L.L.C. (the "Sub-Adviser"), Three Harding
Road, Red Bank, New Jersey 07701, is the sub-adviser for the Fund. The
Sub-Adviser is controlled by David N. Dreman. The Sub-Adviser serves as
sub-adviser pursuant to the terms of a sub-advisory agreement between it and the
Adviser.
Under the terms of the Sub-Advisory Agreement, the Sub-Adviser manages the
investment and reinvestment of the Fund's portfolio and will provide such
investment advice, research and assistance as the Adviser may, from time to
time, reasonably request. The current sub-advisory fee rates paid by the Adviser
to the Sub-Adviser are in the prospectus under "Investment Manager and
Underwriter."
The Sub-Advisory Agreement provides that the Sub-Adviser 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 the Sub-Adviser in the performance of its duties or from reckless
disregard by the Sub-Adviser of its obligations and duties under the
Sub-Advisory Agreement.
The Sub-Advisory Agreement dated March 2, 1998 was approved by the Trustees on
January 21, 1998 and remains in effect until February 1, 2003 unless sooner
terminated or not annually approved as described below. Notwithstanding the
foregoing, the Sub-Advisory Agreement shall continue in effect through February
1, 2003 and year to year thereafter, but only as long as such continuance is
specifically approved at least annually (a) by a majority of the trustees who
are not parties to such agreement or interested persons of any such party except
in their capacity as trustees of KET, and (b) by the shareholders of the Fund or
the Board of Trustees of KET. The Sub-Advisory Agreement may be terminated at
any time upon 60 days' notice by the Adviser or by the Board of Trustees 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. The Sub-Adviser may not terminate the
Sub-Advisory Agreement prior to February 1, 2003. Thereafter, the Sub-Adviser
may terminate the Sub-Advisory Agreement upon 90 days' notice to the Adviser.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), an
affiliate of the Adviser, is the principal underwriter and distributor for the
shares of KET and acts as agent of KET 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. KET 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.
The distribution agreement dated March 2, 1998 was initially approved by the
Trustees on January 21, 1998 and 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 KET, including the Trustees who are not interested
persons of KET and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without penalty by the Fund for
that 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 KET 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 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 agreement.
ADMINISTRATIVE SERVICES. Administrative services are provided to KET under an
administrative services agreement ("administrative agreement") with KDI. KDI
bears all of its expenses of providing services pursuant to the administrative
agreement between KDI and KET, including the payment of service fees. KET pays
KDI an administrative services fee, payable monthly, at an annual rate of up to
.25% of average daily net assets of each of the Class A, B and C shares of the
Fund.
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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 KET. 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 .25% of the net assets in the Fund's accounts that it
maintains and services attributable to Class A shares, commencing with the month
after investment. With respect to Class B and Class C shares, KDI currently
advances to firms the first-year service fee at a rate of up to .25% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms a service fee at a rate of up to .25% (calculated monthly
and normally paid quarterly) of the net assets attributable to Class B and C
shares maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or KET. 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 and it is intended
that KDI will pay all the administrative services fee that it receives from KET
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 the Fund's assets that is in accounts
for which a firm of record provides administrative services.
Certain trustees or officers of KET are also directors or officers of the
Adviser or KDI as indicated under "Officers and Trustees."
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee of 0.025% on the first $150 million of average net assets on an
annual basis, 0.0075% on the next $850 million, and 0.0045% over $1 billion
pursuant to the fund accounting agreement.
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 KET. Kemper Service Company ("KSvC"), an affiliate of the
Adviser, serves as transfer agent and dividend-paying agent and "Shareholder
Service Agent" of the Fund. KSvC receives as transfer agent 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.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. KET's independent auditors,
Ernst & Young, LLP, 223 South Wacker Drive, Chicago, Illinois, audit and report
on KET annual financial statements, review certain regulatory reports and KET's
federal income tax returns, and perform other professional accounting, auditing,
tax and advisory services when engaged to do so by KET. Shareholders will
receive annual audited financial statements and semi-annual unaudited financial
statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the Fund's prospectus, shares of the Fund are sold at their
public offering price, which is the net asset value per share of each class of
the Fund next determined after an order is received in proper form plus, with
respect to Class A shares, an initial sales charge. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100 but such
minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until KET 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.
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Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by KET at the applicable net asset value per
share of such Fund as described in the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies of scale in sales and sales-related
efforts.
KET 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 the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for KET to
determine the value of the Fund's net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
KET'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 as liquid as a redemption entirely in cash.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or ruling by the Internal
Revenue Service or other assurance acceptable to KET 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 KET's dividends constituting
"preferential dividends" under the Code, and (b) that the conversion of Class B
shares to Class A shares does not constitute a taxable event under the Code. The
conversion of Class B shares to Class A shares may be suspended if such
assurance is not available. In that event, no further conversions of Class B
shares would occur, and shares might continue to be subject to the distribution
services fee for an indefinite period that may extend beyond the proposed
conversion date as described in the prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the each of Class B and Class C
shares of the Fund will generally be lower than that of the Class A shares of
the Fund because of the higher expenses borne by the Class B and Class C shares.
The net asset value of shares of the Fund is computed as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on each day the Exchange
is open for trading. The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
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 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.
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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. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
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 of Trustees, 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 fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate 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 normally distributes semi-annually dividends of net investment income.
The Fund distributes any net realized short-term and long-term capital gains at
least annually. Income and capital gain dividends of the Fund are automatically
reinvested in additional shares of the Fund, without a sales charge, unless the
investor makes an election otherwise. Distributions of net capital gains
realized during each fiscal year will be made at least annually in December.
Additional distributions, including distributions of net short-term capital
gains in excess of net long-term capital losses, may be made, if necessary.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
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.
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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.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as capital gains taxable to
individuals at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), will be able to claim a
relative share of federal income taxes paid by the Fund on such gains as a
credit against personal federal income tax liability, and will be entitled to
increase the adjusted tax basis on Fund shares by the difference between a pro
rata share of such gains owned and the individual tax credit.
Dividends from domestic corporations are expected to comprise a substantial part
of the Fund's gross income. To the extent that such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholder,
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss, which the Fund designates as capital gain
dividends, are taxable to individual shareholders at a maximum 20% or 28%
capital gains rate (depending on the Fund's holding period for the assets giving
rise to the gain), regardless of the length of time the shares of the Fund have
been held by such shareholders. Such distributions are not eligible for the
dividends received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
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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. Under Section 988
of the Code, discussed below, foreign currency gain or loss from foreign
currency-related forward contracts, certain futures and similar financial
instruments entered into by the Fund will be treated as ordinary income or loss.
Positions of the Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting 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.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or option
contracts, gains or losses attributable to fluctuations in the value of a
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foreign currency between the date of acquisition of the security or contracts
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies, the Fund
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest change to reflect the value of the tax deferral deemed
to have resulted from the ownership if the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U..S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign investment company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
stock would be deductible as ordinary losses to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to a fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
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. In addition if the Fund invests in certain high yield original
issue discount obligations issued by corporations, a portion of the original
issue discount accruing on the obligation may be eligible for the deductions for
dividends received by corporations. In such an event, dividends of investment
company taxable income received from the Fund by its corporate shareholders to
the extent attributable to such portion of accrued original issue discount may
be eligible for this deduction for dividends received by a corporation if so
designated by the Fund in a written notice to shareholders. If the Fund acquires
a debt instrument at a market discount, a portion of the gain recognized (if
any) on disposition of such instrument may be treated as ordinary income.
The Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A shareholder who redeems shares of the Fund that are held as a capital asset
will recognize capital gain or loss for federal income tax purposes measured by
the difference between the value of the shares redeemed and the adjusted cost
basis of the shares. Any loss recognized on the redemption of Fund shares held
six months or less will be treated as long-term capital loss to the extent that
the shareholder has received any long-term capital gain dividends on such
shares. A shareholder who has redeemed shares of the Fund or any other Kemper
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
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net asset value at the time of the reinvestment in shares of the Fund or in
shares of the other Kemper Mutual Funds within six months of the redemption as
described in the prospectus under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of the same Fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of the Fund's shares for shares of another fund
is treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
the Fund continues to be treated as a regulated investment company under
Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Dividend and interest income received by the Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
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PERFORMANCE
As described in the prospectus, the Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These various measures of performance are described
below. Performance information will be computed separately for each class.
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 the 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 the 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 the 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 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 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.
The Fund's performance figures are based upon historical results and are not
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
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 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 the 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.
Investors may want to compare the performance of the Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
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index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, IBC Financial Data Inc.'s Money Fund
Report (All Taxable). As reported by IBC, 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 KET, their birthdates, their principal occupations
and their affiliations, if any, with the Adviser or KDI, or their affiliates are
as follows (The number following each person's title is the number of investment
companies managed by the Adviser for which he or she holds similar positions):
*DANIEL PIERCE, Trustee (3/18/34) Chairman of the Board and Trustee (35), Two
International Place, Boston, Massachusetts. Managing Director, Scudder
Kemper Investments, Inc.
*MARKS. CASADY, Trustee (9/21/60) Trustee (14) and Vice President, Two
International Place, Boston, Massachusetts. Managing Director, Scudder
Kemper Investments, Inc.
JAMESE. AKINS (10/15/26) Trustee (14), 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs;
formerly, a career United States Foreign Service Officer, Energy Adviser
for the White House and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Trustee (14), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Board of Governors,
Heartland Institute/Illinois; formerly, Member, Illinois State Senate;
formerly, Vice President, The Reuben H. Donnelly Corp.
FREDERICK T. KELSEY (4/25/27) Trustee (14), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs &
Co.; formerly, President, Treasurer and Trustee of Institutional Liquid
Assets and its affiliated mutual funds; Trustee of Benchmark Funds;
formerly, Trustee of the Pilot Funds.
FREDB. 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.
JOHNB. 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.
JOHNG. 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.
23
<PAGE>
*KATHRYN L. QUIRK (12/3/52), Trustee (34), Vice President and Secretary, 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.
*JOHNR. HEBBLE (6/14/58) Assistant Treasurer. 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.
*Trustee who is considered to be an "interested person" as defined in the
Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from KET. The table below shows amounts paid or accrued
to those trustees of KET who are not designated "interested persons." The
information in the last column is for the 1997 calendar year. KET has not yet
adopted a trustee compensation schedule.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Compensation
from Kemper Fund
Complex Paid to
Aggregate Board Members(2)
Compensation
Name of Board Members From KET
James E. Akins......................................... $ 0 $149,100
Arthur R. Gottschalk (1)............................... $ 0 $161,200
Frederick T. Kelsey(1)................................. $ 0 $150,300
Fred B. Renwick........................................ $ 0 $149,200
John B. Tingleff....................................... $ 0 $149,200
John G. Weithers....................................... $ 0 $149,200
</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.
(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.
As of March 2, 1998, the officers and trustees of KET as a group owned less than
1% of the Fund and the Adviser owned of record all of the outstanding shares of
the Fund.
SHAREHOLDER RIGHTS
24
<PAGE>
The Fund is a series of Kemper Equity Trust, a Massachusetts business trust
established under an Agreement and Declaration of Trust of the Trust (the
"Declaration of Trust") dated January 6, 1998.
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 KET, 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 trustees), 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
only the Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any class by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by the Adviser remote and
not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
25
<PAGE>
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 objective of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder
structure. A master/feeder 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 487917 10 6.]
The CUSIP number of the Class B shares of the Fund is 487917 20 5.
The CUSIP number of the Class C shares of the Fund is 487917 30 4.
The Fund has a fiscal year ending November 30.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Adviser in light of the Fund's investment objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.
Costs of $11,000 incurred by the Fund, in conjunction with its organization, are
amortized over the five year period beginning March 2, 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 Equity Trust" is the designation of the Trust for the time
being under a Declaration of Trust dated January 6, 1998, 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
26
<PAGE>
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. The Declaration of Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Fund has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
The Statement of Net Assets as of February 25, 1998 and the Report of
Independent Auditors is filed herein.
27
<PAGE>
APPENDIX--RATINGS OF FIXED INCOME INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc. Bond Ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
28
<PAGE>
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper-Dreman Financial Services Fund
We have audited the accompanying statement of net assets of Kemper-Dreman
Financial Services Fund as of February 25, 1998. This statement of net assets is
the responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper-Dreman Financial
Services Fund at February 25, 1998 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 25, 1998
30
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
STATEMENT OF NET ASSETS
FEBRUARY 25, 1998
ASSETS
Cash $100,000
Organization costs 11,000
-----------------
Total Assets 111,000
LIABILITIES
Organization costs payable 11,000
-----------------
NET ASSETS $100,000
=================
NET ASSETS REPRESENTS:
Shares of beneficial interest
(unlimited number of shares authorized, $.01 par value)
outstanding as follows:
Class A 3,508.772
Class B 3,508.772
Class C 3,508.772 $105
Capital in excess of par value 99,895
-----------------
$100,000
=================
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($33,334 / 3,508.772 shares outstanding) $9.50
Class B* ($33,333 / 3,508.772 shares outstanding) $9.50
Class C* ($33,333 / 3,508.772 shares outstanding) $9.50
Maximum offering price per share:
Class A (net asset value, plus 6.10% of net asset value
or 5.75% of offering price) $10.08
Class B (net asset value) $9.50
Class C (net asset value) $9.50
* Subject to contingent deferred sales charge.
Notes:
1. Kemper-Dreman Financial Services Fund (the "Fund") is a diversified series
of Kemper Equity Trust (the "Trust"), an open-end management investment
company registered under the Investment Company Act of 1940. The Trust was
organized as a business trust under the laws of Massachusetts on January
6, 1998. All Class A, Class B and Class C shares of beneficial interest of
the Fund were issued to Scudder Kemper Investments, Inc., the investment
manager, on February 25, 1998.
2. Costs of $11,000 incurred by the Fund in conjunction with its
organization, are amortized over the five year period beginning March 1,
1998. If any of the shares of the Fund purchased by Scudder Kemper
Investments, Inc. are redeemed prior to the end of the amortization
period, the redemption proceeds will be reduced by the pro rata share of
the unamortized costs as of the date of redemption.
<PAGE>
KEMPER EQUITY TRUST
KEMPER-DREMAN FINANCIAL SERVICES FUND
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights to be filed by amendment.
Included in Part B of this Registration Statement:
Statement of Net Assets.
b. Exhibits:
1. Declaration of Trust dated January 6, 1998 is
filed herein.
2. By-Laws are filed herein.
3. Inapplicable.
4. Specimen Share Certificate to be filed by
Amendment.
5(a). Form of Investment Management
Agreement dated March 2, 1998,
between the Registrant on behalf
of Kemper-Dreman Financial
Services Fund and Scudder Kemper
Investments, Inc., is filed
herein.
5(b). Form of Investment Sub-Advisory
Agreement dated March 2, 1998,
between the Registrant on behalf
of Kemper-Dreman Financial
Services Fund and Dreman Value
Management , L.L.C., is filed
herein.
6. Form of Underwriting Agreement
dated March 2, 1998, between the
Registrant on behalf of
Kemper-Dreman Financial Services
Fund and Kemper Distributors,
Inc., is filed herein.
7. Inapplicable.
8. (a) Custodian Agreement to be filed
by Amendment.
(b) Fee schedule for Exhibit 8(a) to
be filed by Amendment.
Part C - Page 1
<PAGE>
9. (a)(1) Form of Agency Agreement
dated March 2, 1998, between the
Registrant on behalf of
Kemper-Dreman Financial Services
Fund and Kemper Service Company,
is filed herein.
(a)(2) Fee schedule for Exhibit 9(a)(1)
is filed herein.
(b) Shareholder Services Agreement to
be filed by Amendment.
(c) Form of Fund Accounting Services
Agreement dated March 2, 1998,
between the Registrant on behalf
of Kemper-Dreman Financial
Services Fund and Scudder Fund
Accounting Corp., is filed herein.
(d) Form of Administrative Services
Agreement dated March 2, 1998,
between the Registrant on behalf
Kemper-Dreman Financial Services
Fund, and Kemper Distributors,
Inc., is filed herein.
10. Opinion of Counsel is filed herein.
11. Consent of Independent Accountants is filed
herein.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities (as of January 1, 1998).
<TABLE>
<CAPTION>
<S> <C>
(1) (2)
Title of Class Number of Shareholders
Shares of beneficial interest
($.01 par value)
Kemper-Dreman Financial Services Fund 1
</TABLE>
Item 27. Indemnification.
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of Trust
provide as follows:
Section 4.1 No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations
or affairs of the Trust. No Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever to any
Person, other than to the Trust or its Shareholders, in connection with
Trust Property or the affairs of the Trust, save only that arising from
bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties with respect to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims of any
nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability of the Trust, he shall not, on account thereof, be held to
any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to
which such Shareholder may become subject by reason of his being or
having been a Shareholder, and shall reimburse such Shareholder for all
legal and other expenses reasonably incurred by him in connection with
Part C - Page 2
<PAGE>
any such claim or liability, provided that any such expenses shall be
paid solely out of the funds and property of the series of the Trust
with respect to which such Shareholders Shares are issued. The rights
accruing to a Shareholder under this Section 4.1 shall not exclude any
other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 4.2 Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, agent
or service provider thereof for any action or failure to act by him (or
her) or any other such Trustee, officer, employee, agent or service
provider (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The term
"service provider" as used in this Section 4.2, shall include any
investment adviser, principal underwriter or other person with whom the
Trust has an agreement for provision of services.
Section 4.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal, or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust or the
Shareholders by reason of a final adjudication by the court or other
body before which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in paragraph
(b)(i) resulting in a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office;
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (x) vote of a majority of
the Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and shall inure to the
benefit of the heirs, executors, administrators and assigns of such a
person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise under law.
Part C - Page 3
<PAGE>
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4.3 shall be advanced by the Trust prior
to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this
Section 4.3 provided that either:
(i) such undertaking is secured by a surety bond or
some appropriate security provided by the recipient, or the Trust shall
be insured against losses arising out of any such advances: or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested Trustees
act on the matter) or an independent legal counsel in a written opinion
shall determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for the
purpose of this Item 28.
<TABLE>
<CAPTION>
<S> <C>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Zurich Holding Company of Americao
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 Americao
Director, ZKI Holding Corporation xx
Part C - Page 4
<PAGE>
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation* Director,
Vice President & Secretary, Scudder Realty Holdings Corporation* Director &
Assistant Clerk, Scudder Service Corporation* Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporationoo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning
Corporation** Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Markus Rohrbasser Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of Switzerland##
President, Director, Chairman of the Board, ZKI Holding Corporation xx
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporationoo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Part C - Page 5
<PAGE>
Item 29. Principal Underwriters.
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the
Kemper Funds.
(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>
<S> <C> <C>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Underwriter Offices with Registrant
James L. Greenawalt Director, President None
Patrick H. Dudasik Financial Principal, Treasurer and Chief None
Financial officer
Michael E. Harrington Executive Vice President None
Philip D. Hausken Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not Applicable
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder will be maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, NY 10154.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Registrant hereby undertakes to file post-effective
amendments, using reasonably current financial statements of
Kemper-Dreman Financial Services Fund, within four to six
months from the effectiveness date of the Registrant's
Registration Statement under the 1933 Act.
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of a Fund's latest
annual report to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the question of
removal of a Trustee or Trustees when requested to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
Part C - Page 6
<PAGE>
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
registrant will submit unless in the opinion of its counsel
the matter has been settled by controlling precedent, to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the financial adjudication of
such issue.
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 certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on the ___ day of _____________, 1998.
KEMPER EQUITY TRUST
By /s/Mark S. Casady
--------------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. By so signing, the undersigned in his
capacity as trustee or officer, or both, as the case may be, of the Registrant,
does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip Collora, Caroline
Pearson and Maureen Kane and each of them, severally, or if more than one acts,
a majority of them, his true and lawful attorney and agent to execute in his
name, place and stead (in such capacity) any and all amendments to the
Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/James E. Akins Trustee 18 Feb., 1998
- ----------------- -------
James E. Akins
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on the ___ day of _____________, 1998.
KEMPER EQUITY TRUST
By /s/Mark S. Casady
--------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Frederick T. Kelsey Trustee 2/10 , 1998
- ---------------------- -----
Frederick T. Kelsey
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on the ___ day of _____________, 1998.
KEMPER EQUITY TRUST
By /s/Mark S. Casady
-----------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Fred B. Renwick Trustee 2/11 , 1998
- --------------------- ------
Fred B. Renwick
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on the ___ day of _____________, 1998.
KEMPER EQUITY TRUST
By /s/Mark S. Casady
-----------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John G. Weithers Trustee 2/11 , 1998
- ------------------------ -----
John G. Weithers
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on the ___ day of _____________, 1998.
KEMPER EQUITY TRUST
By /s/Mark S. Casady
---------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Kathryn L. Quirk Trustee 2/11 , 1998
- ----------------------- -----
Kathryn L. Quirk
<PAGE>
File No. 333-43815
File No. 811-08599
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
PRE-EFFECTIVE AMENDMENT NO. 1
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 1
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER EQUITY TRUST
<PAGE>
KEMPER EQUITY TRUST
KEMPER-DREMAN FINANCIAL SERVICES FUND
Exhibit Index
Exhibit 1
Exhibit 2
Exhibit 5(a)
Exhibit 5(b)
Exhibit 6
Exhibit 9(a)(1)
Exhibit 9(a)(2)
Exhibit (9)(c)
Exhibit 9(d)
Exhibit 10
Exhibit 11
KEMPER EQUITY TRUST
DECLARATION OF TRUST
DATED JANUARY 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
<CAPTION>
Page
ARTICLE I.........................................................................................................1
Section 1.1. Name....................................................................................... 1
Section 1.2. Definitions.................................................................................1
ARTICLE II........................................................................................................3
Section 2.1. General Powers..............................................................................3
Section 2.2. Investments.................................................................................4
Section 2.3. Legal Title.................................................................................5
Section 2.4. Issuance and Repurchase of Shares...........................................................6
Section 2.5. Delegation; Committees......................................................................6
Section 2.6. Collection and Payment......................................................................6
Section 2.7. Expenses....................................................................................6
Section 2.8. Manner of Acting; By-laws...................................................................7
Section 2.9. Miscellaneous Powers........................................................................7
Section 2.10. Principal Transactions.....................................................................8
Section 2.11. Number of Trustees.........................................................................8
Section 2.12. Election and Term..........................................................................8
Section 2.13. Resignation and Removal....................................................................8
Section 2.14. Vacancies..................................................................................9
Section 2.15. Delegation of Power to Other Trustees......................................................9
Section 2.16. Shareholder Vote, etc......................................................................9
ARTICLE III......................................................................................................10
Section 3.1. Distribution Contract......................................................................10
Section 3.2. Advisory or Management Contract............................................................10
Section 3.3. Affiliations of Trustees or Officers, Etc..................................................10
Section 3.4. Compliance with 1940 Act...................................................................11
ARTICLE IV.......................................................................................................11
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.......................................11
Section 4.2. Non-Liability of Trustees, Etc.............................................................12
Section 4.3. Mandatory Indemnification..................................................................12
Section 4.4. No Bond Required of Trustees...............................................................14
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.................................14
Section 4.6. Reliance on Experts, Etc...................................................................14
ARTICLE V........................................................................................................15
Section 5.1. Beneficial Interest........................................................................15
ii
<PAGE>
Section 5.2. Rights of Shareholders.....................................................................15
Section 5.3. Trust Only.................................................................................15
Section 5.4. Issuance of Shares.........................................................................15
Section 5.5. Register of Shares.........................................................................16
Section 5.6. Transfer of Shares.........................................................................16
Section 5.7. Notices, Reports...........................................................................16
Section 5.8. Treasury Shares............................................................................17
Section 5.9. Voting Powers..............................................................................17
Section 5.10. Meetings of Shareholders..................................................................17
Section 5.11. Series Designation........................................................................18
Section 5.12. Assent to Declaration of Trust............................................................20
Section 5.13. Class Designation.........................................................................20
ARTICLE VI.......................................................................................................21
Section 6.1. Redemption of Shares.......................................................................21
Section 6.2. Price......................................................................................21
Section 6.3. Payment....................................................................................21
Section 6.4. Effect of Suspension of Determination of Net Asset Value...................................21
Section 6.5. Repurchase by Agreement....................................................................22
Section 6.6. Redemption of Shareholder's Interest.......................................................22
Section 6.7. Redemption of Shares in Order to Qualify as Regulated Investment Company; Disclosure of
Holding............................................................................22
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net Asset Value Formula.............23
Section 6.9. Suspension of Right of Redemption..........................................................23
ARTICLE VII......................................................................................................24
Section 7.1. Net Asset Value............................................................................24
Section 7.2. Distributions to Shareholders..............................................................24
Section 7.3. Determination of Net Income; Constant Net Asset Value; Reduction of Outstanding Shares.....25
Section 7.4. Allocation Between Principal and Income....................................................26
Section 7.5. Power to Modify Foregoing Procedures.......................................................26
ARTICLE VIII.....................................................................................................26
Section 8.1. Duration...................................................................................26
Section 8.2. Termination of Trust.......................................................................26
Section 8.3. Amendment Procedure........................................................................27
Section 8.4. Merger, Consolidation and Sale of Assets...................................................28
Section 8.5. Incorporation..............................................................................28
ARTICLE IX.......................................................................................................29
<PAGE>
ARTICLE X........................................................................................................29
Section 10.1. Filing....................................................................................29
Section 10.2. Governing Law.............................................................................29
Section 10.3. Counterparts..............................................................................29
Section 10.4. Reliance by Third Parties.................................................................30
Section 10.5. Provisions in Conflict with Law or Regulations............................................30
</TABLE>
iii
<PAGE>
DECLARATION OF TRUST
OF
KEMPER EQUITY TRUST
DATED JANUARY 6, 1998
DECLARATION OF TRUST made January 6, 1998 by the Trustees (together
with all other persons from time to time duly elected, qualified and serving as
Trustees in accordance with the provisions of Article II hereof, the
"Trustees").
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
Section 1.1. Name.
The name of the Trust created hereby is the "Kemper Equity Trust". The
Trust's principal business address is Two International Place, Boston,
Massachusetts 02110.
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8
hereof, as from time to time amended.
(b) "Class" means the two or more Classes as may be
established and designated from time to time by the Trustees
pursuant to Section 5.13 hereof.
(c) The term "Commission" has the meaning given it in the
1940 Act. The term "Interested Person" has the meaning given
it in the 1940 Act, as modified by any applicable order or
orders of the Commission. Except as otherwise defined by the
Trustees in conjunction with the establishment of any series
of Shares, the term "vote of a majority of the Shares
outstanding and entitled to vote" shall have
<PAGE>
the same meaning as the term "vote of a majority of the
outstanding voting securities" given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of
the 1940 Act, but does not include a system for the central
handling of securities described in said Section 17(f).
(e) "Declaration" means this Declaration of Trust as further
amended from time to time. Reference in this Declaration of
Trust to "Declaration," "hereof," "herein," and "hereunder"
shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words
appear.
(f) "Distributor" means the party, other than the Trust, to
the contract described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as
the masculine genders.
(h) "Investment Adviser" means the party, other than the
Trust, to the contract described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on
behalf of states, territories of the United States and the
District of Columbia and their political subdivisions,
agencies and instrumentalities, or other issuers, the interest
from which is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940,
as amended from time to time.
(k) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
(l) "Series" individually or collectively means the two or
more Series as may be established and designated from time to
time by the Trustees pursuant to Section 5.11 hereof. Unless
the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a
Series, may be divided from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be
divided from time to time, including the Shares of any and all
Series and Classes which may be established by the Trustees
2
<PAGE>
and includes fractions of Shares as well as whole Shares.
"Outstanding Shares" means those Shares shown as of a time and
from time to time on the books of the Trust or its Transfer
Agent as then issued and outstanding, but shall not include
Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the Treasury of the Trust.
(o) "Transfer Agent" means any one or more Persons other than
the Trust who maintains the Shareholder records of the Trust,
such as the list of Shareholders, the number of Shares
credited to each account, and the like.
(p) The "Trust" means the Kemper Equity Trust.
(q) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or
for the account of the Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or
have signed this Declaration, so long as he or they shall
continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly qualified
and serving as Trustees in accordance with the provisions of
Article II hereof, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in this
capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
--------
Section 2.1. General Powers.
------------ --------------
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
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The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments.
------------ ------------
The Trustees shall have the power:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate
to the conduct of such operations.
(b) To invest in, hold for investment, or reinvest in,
securities, including shares of open-end investment companies;
common and preferred stocks; warrants; bonds, debentures,
bills, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or
other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds of
repurchase agreements, of any corporation, company, trust,
association, firm or other business organization however
established, and of any country, state, municipality or other
political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to acquire any rights or
options to purchase or sell, to sell or otherwise dispose of,
to lend, and to pledge any such securities and to enter into
repurchase agreements and forward foreign currency exchange
contracts, to purchase and sell futures contracts on
securities, securities indices and foreign currencies, to
purchase or sell options on such contracts, foreign currency
contracts, and foreign currencies and to engage in all types
of hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of
ownership or interest in all securities, repurchase
agreements, futures contracts and options and other assets
included in the Trust Property, including the right to vote
thereon and otherwise act with respect thereto and to do all
acts for the preservation, protection, improvement and
enhancement in value of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise)
any property, real or personal, including cash, and any
interest therein.
4
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(f) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by
mortgaging, pledging or otherwise subjecting as security the
Trust Property; to endorse, guarantee, or undertake the
performance of any obligation or engagement of any other
Person and to lend Trust Property.
(g) To aid by further investment any corporation, company,
trust, association or firm, any obligation of or interest in
which is included in the Trust Property or in the affairs of
which the Trustees have any direct or indirect interest; to do
all acts and things designed to protect, preserve, improve or
enhance the value of such obligation or interest, and to
guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other obligations of any
such corporation, company, trust, association or firm.
(h) To enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or
indirectly any activity which is primarily intended to result
in the sale of Shares.
(i) To invest, through a transfer of cash, securities and
other assets or otherwise, all or a portion of the Trust
Property, or to sell all or a portion of the Trust Property
and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
(j) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either
alone or in association with others, and to do every other act
or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title.
------------ ------------
Legal title to all the Trust Property, including the property of any
Series of the Trust, shall be vested in the Trustees as joint tenants except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
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Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares.
------------ ----------------------------------
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.11 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
particular series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 2.5. Delegation; Committees.
------------ -----------------------
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment.
------------ -----------------------
The Trustees shall have power to collect all property due to the Trust;
to pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses.
------------ ---------
The Trustees shall have the power to incur and pay any expenses which
in the opinion of the Trustees are necessary or incidental to carry out any of
the purposes of this Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees.
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Section 2.8. Manner of Acting; By-laws.
------------ --------------------------
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers.
------------ ---------------------
Subject to Section 5.11 hereof, the Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent and selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
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Section 2.10. Principal Transactions.
------------- -----------------------
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or transfer agent or with any
Interested Person or such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, transfer agent, dividend disbursing agent or Custodian
upon customary terms.
Section 2.11. Number of Trustees.
------------- -------------------
The number of Trustees shall initially be one (1), and thereafter shall
be such number as shall be fixed from time to time by a written instrument
signed by a majority of the Trustees.
Section 2.12. Election and Term.
------------- ------------------
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
Except in the event of resignation or removals pursuant to Section 2.13 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders, and thereafter until
the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal.
------------- ------------------------
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. 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 so
to do 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. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
or property of any series of the Trust held in the name
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of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
Section 2.14. Vacancies.
------------- ----------
The term of office of a Trustee shall terminate and a vacancy shall
occur in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. In the case of
an existing vacancy, including a vacancy existing by reason of an increase in
the number of Trustees, subject to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees.
------------- --------------------------------------
Any Trustee may, by power of attorney, delegate his power for a period
not exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided.
Section 2.16. Shareholder Vote, etc. Not Required.
------------- ------------------------------------
Except to the extent specifically provided to the contrary in this
Declaration, the Trustees may exercise each of the powers granted to them in
this Declaration without the vote, approval or agreement of the Shareholders,
unless such a vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts.
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ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract.
------------ ----------------------
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Share, whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract.
------------ --------------------------------
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc.
------------ ------------------------------------------
The fact that:
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or
distributor of or for any partnership, corporation,
trust, association or other organization or of or for
any parent or affiliate of any organization, with
which a contract of the character described in
Sections 3.1 or 3.2 above or for services as
Custodian, Transfer Agent, accounting agent or
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disbursing agent or for related services may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is
a Shareholder of or has an interest in the Trust, or
that
(ii) any partnership, corporation, trust,
association or other organization with which a
contract of the character described in Sections 3.1
or 3.2 above or for services as Custodian, Transfer
Agent, accounting agent or disbursing agent or for
related services may have been or may hereafter be
made also has any one or more of such contracts with
one or more other partnerships, corporations, trusts,
associations or other organizations, or has other
business or interests, shall not affect the validity
of any such contract or disqualify any Shareholder,
Trustee or officer of the Trust from voting upon or
executing the same or create any liability or
accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act.
------------ -------------------------
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
------------ -----------------------------------------------------
No Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person; and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding
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sentence shall be made only out of the assets of the one or more Series of which
the Shareholder who is entitled to indemnification or reimbursement was a
Shareholder at the time the act or event occurred which gave rise to the claim
against or liability of said Shareholder. The rights accruing to a Shareholder
under this Section 4.1 shall not impair any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc.
------------ -------------------------------
No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 4.3. Mandatory Indemnification.
------------ --------------------------
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, administrative
or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final
adjudication by a court or other body before which a
proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
his office;
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(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting in
a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body
approving the settlement or other
disposition; or
(B) based upon a review of readily
available facts (as opposed to a full
trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees
acting on the matter (provided that a
majority of the Disinterested Trustees then
in office act on the matter) or (y) written
opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person.
Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4.3 may be advanced
by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the
recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type
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<PAGE>
inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an Interested Person of the Trust (including anyone who
has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Section 4.4. No Bond Required of Trustees.
------------ -----------------------------
No Trustee shall be obligated to give any bond or other security for
the performance of any of his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
------------ ------------------------------------------------------
Etc.
----
No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc.
------------ -------------------------
Each Trustee and officer or employee of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE V
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 5.1. Beneficial Interest.
------------ --------------------
The interest of the beneficiaries hereunder shall be divided into
transferable Shares of beneficial interest, all of one class, except as provided
in Section 5.11 and Section 5.13 hereof, par value $.01 per share. The number of
Shares of beneficial interest authorized hereunder is unlimited. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
non-assessable.
Section 5.2. Rights of Shareholders.
------------ -----------------------
The ownership of the Trust Property and the property of each Series of
the Trust of every description and the right to conduct any business
herein-before described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights specifically set forth in this
Declaration. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights, except as the Trustees may determine
with respect to any Series of Shares.
Section 5.3. Trust Only.
------------ -----------
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, corporation, bailment or any form
of legal relationship other than a trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 5.4. Issuance of Shares.
------------ -------------------
The Trustees in their discretion may, from time to time without vote of
the Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby
15
<PAGE>
changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares.
------------ -------------------
A register shall be kept at the principal office of the Trust or an
office of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares.
------------ -------------------
Except as otherwise provided by the Trustees, shares shall be
transferable on the records of the Trust only by the record holder thereof or by
his agent thereunto duly authorized, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports.
------------ ----------------
Any and all notices to which any Shareholder may be entitled and any
and all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be
16
<PAGE>
sent to a Shareholder (i) if an annual report and a proxy statement for two
consecutive shareholder meetings have been mailed to such Shareholder's address
and have been returned as undeliverable, (ii) if all, and at least two, checks
(if sent by first class mail) in payment of dividends on Shares during a
twelve-month period have been mailed to such Shareholder's address and have been
returned as undeliverable or (iii) in any other case in which a proxy statement
concerning a meeting of security holders is not required to be given pursuant to
the Commission's proxy rules as from time to time in effect under the Securities
Exchange Act of 1934. However, delivery of such proxy statements, annual reports
and other communications shall resume if and when such Shareholder delivers or
causes to be delivered to the Trust written notice setting forth such
Shareholder's then current address.
Section 5.8. Treasury Shares.
------------ ----------------
Shares held in the treasury shall, until reissued pursuant to Section
5.4, not confer any voting rights on the Trustees, nor shall such Shares be
entitled to any dividends or other distributions declared with respect to the
Shares.
Section 5.9. Voting Powers.
------------ --------------
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.12; (ii) for the removal of Trustees as
provided in Section 2.13; (iii) with respect to any amendment of this
Declaration to the extent and as provided in Section 8.3; (iv) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class thereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to bring a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); and (v) with respect to
such additional matters relating to the Trust as may be required by this
Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that the Trustees may, in conjunction with the establishment of any Series or
Class of Shares, establish or reserve the right to establish conditions under
which the several Series or Classes shall have separate voting rights or no
voting rights. There shall be no cumulative voting in the election of Trustees.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration or the By-laws to be
taken by Shareholders. The By-laws may include further provisions for
Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders.
------------- -------------------------
Meetings of Shareholders may be called at any time by the President,
and shall be called by the President and Secretary at the request in writing or
by resolution, of a majority of
17
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Trustees, or at the written request of the holder or holders of ten percent
(10%) or more of the total number of Shares then issued and outstanding of the
Trust entitled to vote at such meeting. Any such request shall state the purpose
of the proposed meeting.
Section 5.11. Series Designation.
------------- -------------------
The Trustees, in their discretion, may authorize the division of Shares
into two or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different Series as to investment objective, purchase
price, allocation of expenses, right of redemption, special and relative rights
as to dividends and on liquidation, conversion rights, and conditions under
which the several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all Series as
the context may require.
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context
requires otherwise.
(b) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series into one
or more Series that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the
same or some other Series), reissue for such consideration and
on such terms as they may determine, or cancel any Shares of
any Series reacquired by the Trust at their discretion from
time to time.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors of such Series and
except as may otherwise be required by applicable laws, and
shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular
Series, the Trustees shall allocate them among any one or more
of the Series established and designated from time to time in
such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation by
the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
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<PAGE>
(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that
Series and with all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees to and among
any one or more of the Series established and designated from
time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Series for all purposes. The Trustees
shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items are capital; and
each such determination and allocation shall be conclusive and
binding upon the Shareholders. The assets of a particular
Series of the Trust shall, under no circumstances, be charged
with liabilities attributable to any other Series of the
Trust. All persons extending credit to, or contracting with or
having any claim against a particular Series of the Trust
shall look only to the assets of that particular Series for
payment of such credit, contract or claim. No Shareholder or
former Shareholder of any Series shall have any claim on or
right to any assets allocated or belonging to any other
Series.
(e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each
holder of Shares of a Series shall be entitled to receive his
pro rata share of distributions of income and capital gains
made with respect to such Series, except as provided in
Section 5.13 hereof. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his
being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property
of such Series of the Trust. Upon liquidation or termination
of a Series of the Trust, Shareholders of such Series shall be
entitled to receive a pro rata share of the net assets of such
Series, except as provided in Section 5.13 hereof. A
Shareholder of a particular Series of the Trust shall not be
entitled to participate in a derivative or class action on
behalf of any other Series or the Shareholders of any other
Series of the Trust.
(f) The establishment and designation of any Series of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such
instrument. The Trustees may by an instrument executed by a
majority of their number abolish any Series and the
establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power
to determine the designations, preferences, privileges,
limitations and rights, of each class and Series of Shares.
Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
19
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Section 5.12. Assent to Declaration of Trust.
------------- -------------------------------
Every Shareholder, by virtue of having become a shareholder, shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto.
Section 5.13. Class Designation.
------------- ------------------
The Trustees, in their discretion, may authorize the division of the
Shares of the Trust, or, if any Series be established, the Shares of any Series,
into two or more Classes, and the different Classes shall be established and
designated, and the variations in the relative rights and preferences as between
the different Classes shall be fixed and determined, by the Trustees; provided,
that all Shares of the Trust or of any Series shall be identical to all other
Shares of the Trust or the same Series, as the case may be, except that there
may be variations between different Classes as to allocation of expenses, right
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust or any Series into two or
more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any
Series of the Trust, shall apply equally to each Class of
Shares of the Trust or of any Series of the Trust, except as
the context requires otherwise.
(b) The number of Shares of each Class that may be issued
shall be unlimited. The Trustees may classify or reclassify
any Shares or any Series of any Shares into one or more
Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or
some other Class), reissue for such consideration and on such
terms as they may determine, or cancel any Shares of any Class
reacquired by the Trust at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses
that should properly be allocated to, the Shares of a
particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares
may be appropriately reflected (in a manner determined by the
Trustees) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation
rights of, the Shares of different classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders
of all Classes for all purposes.
20
<PAGE>
(d) The establishment and designation of any Class of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such
instrument. The Trustees may, by an instrument executed by a
majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------
Section 6.1. Redemption of Shares.
------------ ---------------------
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified
written application of the record holder thereof (or upon such other form of
request as the Trustees may determine) at such office or agency as may be
designated from time to time for that purpose in the Trust's then effective
registration statement under the Securities Act of 1933. The Trustees may from
time to time specify additional conditions, not inconsistent with the 1940 Act,
regarding the redemption of Shares in the Trust's then effective registration
statement under the Securities Act of 1933.
Section 6.2. Price.
------------ ------
Shares shall be redeemed at their net asset value, which may be reduced
by any redemption fee authorized by the Trustees, determined as set forth in
Section 7.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 7.1 hereof after receipt of such application.
Section 6.3. Payment.
------------ --------
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
------------ ---------------------------------------------------------
If, pursuant to Section 6.9 hereof, the Trustees shall declare a
suspension of the determination of net asset value, the rights of Shareholders
(including those who shall have
21
<PAGE>
applied for redemption pursuant to Section 6.1 hereof but who shall not yet have
received payment) to have Shares redeemed and paid for by the Trust shall be
suspended until the termination of such suspension is declared. Any record
holder who shall have his redemption right so suspended may, during the period
of such suspension, by appropriate written notice of revocation at the office or
agency where application was made, revoke any application for redemption not
honored and withdraw any certificates on deposit. The redemption price of Shares
for which redemption applications have not been revoked shall be the net asset
value of such Shares next determined as set forth in Section 7.1 after the
termination of such suspension, and payment shall be made within seven (7) days
after the date upon which the application was made plus the period after such
application during which the determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement.
------------ ------------------------
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the net asset value per Share determined as of the time
when the purchase or contract of purchase is made or the net asset value as of
any time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
Section 6.6. Redemption of Shareholder's Interest.
------------ -------------------------------------
The Trust shall have the right at any time without prior notice to the
Shareholder to redeem Shares of any Shareholder for their then current net asset
value per Share if
(a) at such time the Shareholder owns Shares having an
aggregate net asset value of less than an amount set from time
to time by the Trustees subject to such terms and conditions
as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail
itself of such right, either by publication in the Trust's
registration statement, if any, or by such other means as the
Trustees may determine, or
(b) The Trustees believe that it is in the best interest of
the Trust to do so because of prior involvement by the
Shareholder in fraudulent acts relating to securities
transactions.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
------------ -----------------------------------------------------
Investment Company; Disclosure of Holding.
------------------------------------------
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other
22
<PAGE>
means deemed equitable by them (i) to call for redemption by any such Person a
number, or principal amount, of Shares or other securities of the Trust
sufficient to maintain or bring the direct or indirect ownership of Shares or
other securities of the Trust into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares or other securities
of the Trust to any Person whose acquisition of the Shares or other securities
of the Trust in question would result in such disqualification. The redemption
shall be effected at the redemption price and in the manner provided in Section
6.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant
------------ ---------------------------------------------------
to Net Asset Value Formula.
---------------------------
The Trust may also reduce the number of Outstanding Shares pursuant to
the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption.
------------ ----------------------------------
The Trust may declare a suspension of the right of redemption or
postpone the date of payment or redemption for the whole or any part of any
period (i) during which the New York Stock Exchange is closed other than
customary week-end and holiday closings, (ii) during which trading on the New
York Stock Exchange is restricted, (iii) during which an emergency exists as a
result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or (iv) during any other period when
the Commission may for the protection of Shareholders of the Trust by order
permit suspension of the right of redemption or postponement of the date of
payment or redemption; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (ii), (iii),
or (iv) exist. Such suspension shall take effect at such time as the Trust shall
specify but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be no right
of redemption or payment on redemption until the Trust shall declare the
suspension at an end, except that the suspension shall terminate in any event on
the first day on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which in the absence of an
official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
Section 7.1. Net Asset Value.
------------ ----------------
The value of the assets of the Trust or any Series of the Trust shall
be determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing the net asset value
of the Class, or, if no Class has been established, of the Series, or, if no
Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Shares
shall be determined at least once on each business day, as of the close of
trading on the New York Stock Exchange or as of such other time or times as the
Trustees shall determine. The power and duty to make the daily calculations may
be delegated by the Trustees to the Investment Adviser, the Custodian, the
Transfer Agent or such other Person as the Trustees may determine by resolution
or by approving a contract which delegates such duty to another Person. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders.
------------ ------------------------------
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets of the Trust or such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of the Trust or such Series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of the Trust or such
Series issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding
24
<PAGE>
day if the distribution is declared as of a day on which Boston banks are not
open for business, all as described in the registration statement under the
Securities Act of 1933. The Trustees may always retain from the net profits such
amount as they may deem necessary to pay the debts or expenses of the Trust or
the Series or to meet obligations of the Trust or the Series, or as they may
deem desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate. The above provisions may
be modified to the extent required by a plan adopted by the Trustees to
establish Classes of Shares of the Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
------------ ------------------------------------------------------
Reduction of Outstanding Shares.
--------------------------------
Subject to Section 5.11 and Section 5.13 hereof, the net income of the
Trust or any Series shall be determined in such manner as the Trustees shall
provide by resolution. Expenses of the Trust or a Series, including the advisory
or management fee, shall be accrued each day. Such net income may be determined
by or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such Exchange is open or as of such
other time or times as the Trustees shall determine, and, except as provided
herein, all the net income of the Trust or any Series, as so determined, may be
declared as a dividend on the Outstanding Shares of the Trust or such Series.
If, for any reason, the net income of the Trust or any Series, determined at any
time is a negative amount, the Trustees shall have the power with respect to the
Trust or such Series (i) to offset each Shareholder's pro rata share of such
negative amount from the accrued dividend account of such Shareholder, or (ii)
to reduce the number of Outstanding Shares of the Trust or such Series by
reducing the number of Shares in the account of such Shareholder by that number
of full and fractional Shares which represents the amount of such excess
negative net income, or (iii) to cause to be recorded on the books of the Trust
or such Series an asset account in the amount of such negative net income, which
account may be reduced by the amount, provided that the same shall thereupon
become the property of the Trust or such Series with respect to the Trust or
such Series and shall not be paid to any Shareholder, of dividends declared
thereafter upon the Outstanding Shares of the Trust or such Series on the day
such negative net income is experienced, until such asset account is reduced to
zero; or (iv) to combine the methods described in clauses (i) and (ii) and (iii)
of this sentence, in order to cause the net asset value per Share of the Trust
or such Series to remain at a constant amount per Outstanding Share immediately
after each such determination and declaration. The Trustees shall also have the
power to fail to declare a dividend out of net income for the purpose of causing
the net asset value per Share to be increased to a constant amount. The Trustees
shall
25
<PAGE>
not be required to adopt, but may at any time adopt, discontinue or amend the
practice of maintaining the net asset value per Share of the Trust or a Series
at a constant amount.
Section 7.4. Allocation Between Principal and Income.
------------ ----------------------------------------
The Trustees shall have full discretion to determine whether any cash
or property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal amount, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures.
------------ -------------------------------------
Notwithstanding any of the foregoing provisions of this Article VII,
the Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the per Share net asset value or net income, or the
declaration and payment of dividends and distributions as they may deem
necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
------------------------
Section 8.1. Duration.
------------ ---------
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
Section 8.2. Termination of Trust.
------------ ---------------------
(a) The Trust or any Series of the Trust may be terminated by
an instrument in writing signed by a majority of the Trustees,
or by the affirmative vote of the holders of a majority of the
Shares of the Trust or Series outstanding and entitled to vote
at any meeting of Shareholders. Upon the termination of the
Trust or any Series,
(i) the Trust or any Series shall carry on no
business except for the purpose of winding up its
affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust or Series and all of the powers
of the Trustees under this Declaration shall continue
until the affairs of the Trust or Series shall have
been wound up, including the power to fulfill or
discharge the contracts of the Trust or Series,
collect its assets, sell, convey, assign, exchange,
transfer or
26
<PAGE>
otherwise dispose of all or any part of
the remaining Trust Property or property of the
Series to one or more persons at public or private
sale for consideration which may consist in whole or
in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as
they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property
or property of the Series, in cash or in kind or
partly each, among the Shareholders of the Trust or
Series according to their respective rights.
(b) After termination of the Trust or any Series and
distribution to the Shareholders as herein provided, a
majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth
the fact of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders of
the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
------------ --------------------
(a) This Declaration may be amended by a vote of the holders
of a majority of the Shares outstanding and entitled to vote.
Amendments shall be effective upon the taking of action as
provided in this section or at such later time as shall be
specified in the applicable vote or instrument. The Trustees
may also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable federal or state
laws or regulations or the requirements of the regulated
investment company provisions of the Internal Revenue Code
(including those provisions of such Code relating to the
retention of the exemption from federal income tax with
respect to dividends paid by the Trust out of interest income
received on Municipal Bonds), but the Trustees shall not be
liable for failing so to do. The Trustees may also amend this
Declaration without the vote or consent of Shareholders if
they deem it necessary or desirable to change the name of the
Trust, to supply any omission, to cure, correct or supplement
any ambiguous, defective or inconsistent provision hereof, or
to make any other changes in the Declaration which do not
materially adversely affect the rights of Shareholders
hereunder.
(b) No amendment may be made under this Section 8.3 which
would change any rights with respect to any Shares of the
Trust or Series by reducing the amount payable thereon upon
liquidation of the Trust or Series or by diminishing or
eliminating any voting rights pertaining thereto, except with
the vote or consent of the holders of two-thirds of the Shares
of the Trust or Series outstanding
27
<PAGE>
and entitled to vote. Nothing contained in this Declaration
shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly
adopted by the Shareholders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, and executed by a
majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets.
------------ -----------------------------------------
The Trust or any Series thereof may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of any
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized by an instrument in writing signed by a
majority of the Trustees.
Section 8.5. Incorporation.
------------ --------------
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
28
<PAGE>
ARTICLE IX
REPORTS TO SHAREHOLDERS
-----------------------
The Trustees shall at least semi-annually submit to the Shareholders
a written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1. Filing.
------------- -------
This Declaration and any amendment hereto shall be filed in the office
of the Secretary of the Commonwealth of Massachusetts and in such other places
as may be required under the laws of the Commonwealth of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law.
------------- --------------
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts.
------------- -------------
This Declaration may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
29
<PAGE>
Section 10.4. Reliance by Third Parties.
------------- --------------------------
Any certificate executed by an individual who, according to the records
of the Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
------------- -----------------------------------------------
The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
30
<PAGE>
If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
6th day of January, 1998.
------------------------------------
Caroline Pearson, as Trustee and not Individually
Two International Place, 10th floor
Boston, Massachusetts 02110
31
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk January 6, 1998
Then personally appeared the above-named ___________________ who
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
------------------------------
Notary Public
My commission expires: __________
32
BY-LAWS
OF
KEMPER EQUITY TRUST
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings and Other
Purposes 2
Section 4. Proxies 3
Section 5. Action Without Meeting 4
ARTICLE IV - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 5
ARTICLE IV.A - HONORARY TRUSTEES 6
Section 1. Number; Qualification; Term: 6
Section 2. Duties; Remuneration: 6
ARTICLE V - COMMITTEES 7
Section 1. Executive and Other Committees 7
Section 2. Meetings, Quorum and Manner of Acting 8
ARTICLE VI - OFFICERS 8
Section 1. General Provisions 8
Section 2. Term of Office and Qualifications 9
Section 3. Removal 9
Section 4. Chairperson of the Board 10
Section 5. Vice-Chairperson of the Board 10
Section 6. Powers and Duties of the President 10
Section 7. Powers and Duties of Executive Vice
Presidents and Vice Presidents 11
Section 8. Powers and Duties of the Treasurer 12
Section 9. Powers and Duties of the Secretary 12
Section 10. Powers and Duties of Assistant Treasurers 12
Section 11. Powers and Duties of Assistant
Secretaries 13
Section 12. Compensation of Officers and Trustees and
Members of the Advisory Board 13
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
ARTICLE VII - FISCAL YEAR 14
ARTICLE VIII - SEAL 14
ARTICLE IX - WAIVERS OF NOTICE 14
ARTICLE X - CUSTODY OF SECURITIES 15
Section 1. Employment of a Custodian 15
Section 2. Action Upon Termination of Custodian
Agreement 15
Section 3. Central Certificate System 15
Section 4. Acceptance of Receipts in Lieu of
Certificates 16
ARTICLE XI - AMENDMENTS 16
ARTICLE XII - INSPECTION OF BOOKS 17
ii
<PAGE>
BY-LAWS
OF
KEMPER EQUITY TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of Kemper Equity Trust dated January 6,
1998, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees from time to time may
determine.
<PAGE>
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as provided
in the Declaration at such place within or without the Commonwealth of
Massachusetts as the Trustees shall designate. The holders of a one-third of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his/her address as recorded on the
register of the Trust mailed at least ten (10) days and not more than ninety
(90) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who should have failed to inform the Trust of his/her current address, if notice
is not required by the Declaration, or if a written waiver of notice, executed
before or after the meeting by the Shareholder or his/her attorney thereunto
authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
2
<PAGE>
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
3
<PAGE>
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he/she may vote by his/her guardian or such other
person appointed or having such control, and such vote may be given in person or
by proxy.
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairperson, or by any
one of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
4
<PAGE>
Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, sent by facsimile or electronic mail
or other communication leaving a visual record to each Trustee at his/her
business address, or personally delivered to him/her at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by
him/her before or after the meeting, is filed with the records of the meeting,
or to any Trustee who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him/her. A notice or waiver of notice
need not specify the purpose of any meeting. Meetings can be held in conjunction
with investment companies having the same investment adviser or an affiliated
investment adviser. The Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all persons
participating in the meeting shall be deemed to have been present at a place
designated by the Trustees at the meeting. Any action required or permitted to
be taken at any meeting of the Trustees may be taken by the Trustees without a
meeting if all the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the
5
<PAGE>
transaction of business at such meeting and (except as otherwise required
by law, the Declaration or these By-Laws) the act of a majority of the Trustees
present at any such meeting, at which a quorum is present, shall be the act of
the Trustees. In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE IV.A
HONORARY TRUSTEES
Section 1. Number; Qualification; Term: The Trustees may from time to time
designate and appoint one or more qualified persons to the position of "honorary
trustee." Each honorary trustee shall serve for such term as shall be specified
in the resolution of the Trustees appointing him or her until his or her earlier
resignation or removal. An honorary trustee may be removed from such position
with or without cause by the vote of a majority of the Trustees given at any
regular meeting or special meeting of the Board.
Section 2. Duties; Remuneration: An honorary trustee shall be invited to
attend all meetings of the Trustees but shall not be present at any portion of a
meeting from which the honorary trustee shall have been excluded by vote of the
Trustees. An honorary trustee shall not be a "Trustee" or "officer" within the
meaning of the Trust's Declaration of Trust or of these By-Laws, shall not be
deemed to be a member of an "advisory board" within the meaning of the
Investment Company Act of 1940, as amended
6
<PAGE>
from time to time, shall not hold himself or herself out as any of the
foregoing, and shall not be liable to any person for any act of the Trust.
Notice of special meetings may be given to an honorary trustee but the failure
to give such notice shall not affect the validity of any meeting or the action
taken thereat. An honorary trustee shall not have the powers of a Trustee, may
not vote at meetings of the Trustees and shall not take part in the operation or
governance of the Trust. An honorary trustee shall not receive any compensation
but may, in the discretion of the Trustees, be reimbursed for expenses incurred
in attending meetings of the Trustees or otherwise.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such
7
<PAGE>
Committees, the powers conferred upon the same (subject to the same
limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a Chairperson of any such Committee. In the absence of such
designation, the Committee may elect its own Chairperson.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, and (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting. Unless otherwise specified by the Trustees, the members of a
Committee may meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such
8
<PAGE>
other officers or agents as the business of the Trust may require,
including one or more Executive Vice Presidents, one or more Vice Presidents,
one or more Assistant Secretaries, and one or more Assistant Treasurers. The
Trustees may delegate to any officer or Committee the power to appoint any
subordinate officers or agents. The Trustees by vote of a majority of all the
Trustees may elect, but shall not be required to elect, from their own number a
Chairperson and Vice-Chairperson of the Trustees.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall each hold office until his/her successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. An
Executive Vice President or Vice President and the Treasurer or Assistant
Treasurer or an Executive Vice President or a Vice President and the Secretary
or Assistant Secretary may be the same person, but the offices of Executive Vice
President or Vice President and Secretary and Treasurer shall not be held by the
same person. The President shall hold no other office. Except as above provided,
any two offices may be held by the same person. Any officer may be, but none
need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office.
9
<PAGE>
Any officer or agent appointed by an officer or Committee may be removed
with or without cause by such appointing officer or Committee.
Section 4. Chairperson of the Board. The Chairperson of the Board, if there
be such an officer, shall be the senior officer of the Trust, preside at all
shareholders' meetings and at all meetings of the Board of Trustees, and shall
be ex officio a member of all committees of the Board of Trustees. The
Chairperson of the Board shall also call meetings of the Trustees and of any
committee thereof when he/she deems it necessary. He/She shall have such other
powers and perform such other duties as may be assigned to him/her from time to
time by the Board of Trustees.
Section 5. Vice-Chairperson of the Board. The Vice-Chairperson of the
Board, if there be such an officer, shall, in the absence of the Chairperson,
preside at all shareholders' meetings and at all meetings of the Board of
Trustees and shall have such powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Trustees.
Section 6. Powers and Duties of the President. The President, in the
absence of the Chairperson and Vice Chairperson, if any, may call meetings of
the Trustees and of any Committee thereof when he/she deems it necessary and, in
the absence of the Chairperson and Vice-Chairperson, if any, may preside at all
meetings of the Shareholders and at all meetings of the Trustees. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their
10
<PAGE>
respective spheres, as provided by the Trustees, he/she shall at
all times exercise a general supervision and direction over the affairs of the
Trust. He/She shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as he/she
may find necessary to transact the business of the Trust. He/She shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him/her by the
Trustees.
Section 7. Powers and Duties of Executive Vice Presidents and Vice
Presidents. In the absence or disability of the President, the Executive Vice
President or, if there be more than one Executive Vice President, any Executive
Vice President designated by the Trustees shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. In the event no Executive Vice President is able so to serve, the Vice
President or, if there be more than one Vice President, any Vice President
designated by the Trustees shall perform all the duties and may exercise any of
the powers of the President, subject to the control of the Trustees. Each
Executive Vice President and Vice President shall perform such duties as may be
assigned to him/her from time to time by the Trustees and the President.
11
<PAGE>
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He/She shall deliver
all funds of the Trust which may come into his/her hands to such Custodian as
the Trustees may employ pursuant to Article X of these By-Laws. He/She shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and he/she shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him/her by the Trustees. The Treasurer shall give a bond
for the faithful discharge of his/her duties, if required so to do by the
Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he/she shall have custody of the seal of the Trust;
he/she shall have charge of the Share transfer books, lists and records unless
the same are in the charge of the Transfer Agent. He/She shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these By-Laws and as required by law; and subject to these By-Laws, he/she
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him/her by the Trustees.
Section 10. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant
12
<PAGE>
Treasurer designated by the Trustees shall perform all the duties, and may
exercise any of the powers, of the Treasurer. Each Assistant Treasurer shall
perform such other duties as from time to time may be assigned to him/her by the
Trustees. Each Assistant Treasurer shall give a bond for the faithful discharge
of his/her duties, if required so to do by the Trustees, in such sum and with
such surety or sureties as the Trustees shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him/her by the Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he/she is also a Trustee.
13
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be as specified from time to time by the
Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by facsimile or other communication leaving a
visual record for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or facsimile or other such communications
company with instructions that it be telegraphed, cabled, sent by facsimile or
electronic mail or other communication leaving a visual record.
14
<PAGE>
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank meeting
the requirements of a custodian of assets of a registered investment company
prescribed in the 1940 Act and the rules and orders thereunder, and shall be
appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trusts shall function
without a custodian or shall be liquidated.
Section 3. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the Custodian or
a sub-custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with
15
<PAGE>
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940 Act
and the rules and orders thereunder, pursuant to which system all securities of
any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or its
Custodian.
Section 4. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted by (a) vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no By-Law may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
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ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what time and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the Shareholders; and no Shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by laws or
authorized by the Trustees or by resolution of the Shareholders.
17
INVESTMENT MANAGEMENT AGREEMENT
Kemper Equity Trust
Two International Place
Boston, Massachusetts 02110
March 2, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper-Dreman Financial Services Fund
Ladies and Gentlemen:
Kemper Equity 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 $.01 per share, (the "Shares") in separate
series, or funds. The Board of Trustees has authorized Kemper-Dreman Financial
Services 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 January 6, 1998, 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 6, 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
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the amount of dividends and distributions available to be paid by the Fund to
its shareholders, preparing and arranging for the printing of dividend notices
to shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
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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 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 further 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 further 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 further 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 further 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
4
<PAGE>
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
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 Equity
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.
5
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You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
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 Equity Trust, on behalf of
Kemper-Dreman Financial Services 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
SUB-ADVISORY AGREEMENT
AGREEMENT made this ____ day of ____________, 1998, by and between
SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation (the "Adviser") and
DREMAN VALUE MANAGEMENT, L.L.C., a Delaware limited liability company (the
"Sub-Adviser").
WHEREAS, KEMPER EQUITY TRUST, a Massachusetts business trust (the
"Fund") is a management investment company registered under the Investment
Company Act of 1940 ("the Investment Company Act");
WHEREAS, the Fund has retained the Adviser to render to it investment
advisory and management services with regard to the Fund, including the series
known as the Kemper-Dreman Financial Services Fund (the "Financial Services
Series"), pursuant to an Investment Management Agreement (the "Management
Agreement"); and
WHEREAS, the Adviser desires at this time to retain the Sub-Adviser to
render investment advisory and management services for the Financial Services
Series and the Sub-Adviser is willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. Appointment of Sub-Adviser.
(a) The Adviser hereby employs the Sub-Adviser to manage the
investment and reinvestment of the assets of the Financial Services Series in
accordance with the applicable investment objectives, policies and limitations
and subject to the supervision of the Adviser and the Board of Trustees of the
Fund for the period and upon the terms herein set forth, and to place orders for
the purchase or sale of portfolio securities for the Financial Services Series
account with brokers or dealers selected by the Sub-Adviser; and, in connection
therewith, the Sub-Adviser is authorized as the agent of the Financial Services
Series to give instructions to the Custodian and Accounting Agent of the Fund as
to the deliveries of securities and payments of cash for the account of the
Financial Services Series. In
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connection with the selection of such brokers or dealers and the placing of such
orders, the Sub-Adviser is directed to seek for the Financial Services Series
best execution of orders. Subject to such policies as the Board of Trustees of
the Fund determines and subject to satisfying the requirements of Section 28(e)
of the Securities Exchange Act of 1934, the Sub-Adviser shall not be deemed to
have acted unlawfully or to have breached any duty, created by this Agreement or
otherwise, solely by reason of its having caused the Financial Services Series
to pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Sub-Adviser determined in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or the Sub-Adviser's
overall responsibilities with respect to the clients of the Sub-Adviser as to
which the Sub-Adviser exercises investment discretion. The Adviser recognizes
that all research services and research that the Sub-Adviser receives are
available for all clients of the Sub-Adviser, and that the Financial Services
Series and other clients of the Sub-Adviser may benefit thereby. The investment
of funds shall be subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time be in
force to the extent the same are provided the Sub-Adviser.
(b) The Sub-Adviser accepts such employment and agrees during
the period of this Agreement to render such investment management services in
accordance with the applicable investment objectives, policies and limitations
set out in the Fund's prospectus and Statement of Additional Information, as
amended from time to time, to the extent the same are provided the Sub-Adviser,
to furnish related office facilities and equipment and clerical, bookkeeping and
administrative services for the Financial Services Series, and to assume the
other obligations herein set forth for the compensation herein provided. The
Sub-Adviser shall assume and pay all of the costs and expenses of performing its
obligations under this Agreement. The Sub-Adviser shall for all purposes herein
provided be deemed to be an independent contractor and, unless otherwise
expressly provided
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or authorized, shall have no authority to act for or represent the Fund, the
Financial Services Series or the Adviser in any way or otherwise be deemed an
agent of the Fund. the Financial Services Series or the Adviser.
(c) The Sub-Adviser will keep the Adviser, for itself and on
behalf of the Fund, informed of developments materially affecting the Fund or
the Financial Services Series and shall, on the Sub-Adviser's own initiative and
as reasonably requested by the Adviser, for itself and on behalf of the Fund,
furnish to the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
(d) The Sub-Adviser shall provide the Adviser with such
investment portfolio accounting and shall maintain and provide such detailed
records and reports as the Adviser may from time to time reasonably request,
including without limitation, daily processing of investment transactions and
periodic valuations of investment portfolio positions as required by the
Adviser, monthly reports of the investment portfolio and all investment
transactions and the preparation of such reports and compilation of such data as
may be required by the Adviser to comply with the obligations imposed upon it
under the Management Agreement. Sub-Adviser agrees to install in its offices
computer equipment or software, as provided by the Adviser at its expense, for
use by the Sub-Adviser in performing its duties under this Sub-Advisory
Agreement, including inputting on a daily basis that day's portfolio
transactions in the Financial Services Series.
(e) The Sub-Adviser shall maintain and enforce adequate
security procedures with respect to all materials, records, documents and data
relating to any of its responsibilities pursuant to this Agreement including all
means for the effecting of securities transactions.
(f) The Sub-Adviser agrees that it will provide to the Adviser
or the Fund promptly upon request reports and copies of such of its investment
records and ledgers with respect to the Financial Services Series as appropriate
to assist the Adviser and the Fund in monitoring compliance with the Investment
Company Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as
well as other applicable laws. The Sub-Adviser will furnish
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<PAGE>
the Fund's Board of Trustees such periodic and special reports with respect to
the Financial Services Series as the Adviser or the Board of Trustees may
reasonably request, including statistical information with respect to the
Financial Services Series' securities.
(g) In compliance with the requirements of Rule 31a-3 under
the Investment Company Act, the Sub-Adviser hereby agrees that any records that
it maintains for the Fund are the property of the Fund and further agrees to
surrender promptly any such records upon the Fund's or the Adviser's request,
although the Sub-Adviser may, at the Sub-Adviser's own expense, make and retain
copies of such records. The Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 3la-2 under the Investment Company Act any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 3la-1 under the Investment Company Act to the extent that the Sub-Adviser
prepares and maintains such records pursuant to this Agreement and to preserve
the records required by Rule 204-2 under the Advisers Act for the period
specified in that Rule.
(h) The Sub-Adviser agrees that it will immediately notify the
Adviser and the Fund in the event that the Sub-Adviser: (i) becomes subject to a
statutory disqualification that prevents the Sub-Adviser from serving as an
investment adviser pursuant to this Agreement; or (ii) is or expects to become
the subject of an administrative proceeding or enforcement action by the United
States Securities and Exchange Commission ("SEC") or other regulatory authority.
(i) The Sub-Adviser agrees that it will immediately forward,
upon receipt, to the Adviser, for itself and as agent for the Fund, any
correspondence from the SEC or other regulatory authority that relates to the
Financial Services Series.
(j) The Sub-Adviser acknowledges that it is an "investment
adviser" to the Fund within the meaning of the Investment Company Act and the
Advisers Act.
(k) The Sub-Adviser shall be responsible for maintaining an
appropriate compliance program to ensure that the services provided by it under
this Agreement are performed in a
4
<PAGE>
manner consistent with applicable laws and the terms of this Agreement.
Sub-Adviser agrees to provide such reports and certifications regarding its
compliance program as the Adviser or the Fund shall reasonably request from time
to time. Furthermore, the Sub-Adviser shall maintain and enforce a Code of
Ethics which in form and substance is consistent with industry norms as changed
from time to time. Sub-Adviser agrees to allow the Board of Trustees of the Fund
to review its Code of Ethics upon request. Sub-Adviser agrees to report to the
Adviser on a quarterly basis any violations of the Code of Ethics of which its
senior management becomes aware.
2. Compensation.
For the services and facilities described herein, the Adviser
will pay to the Sub-Adviser, 15 days after the end of each calendar month, the
unpaid balance of a fee equal to 1/12 of .240 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 $250,000,000, the
fee payable for that month based on the portion of the average of such values in
excess of $250,000,000 shall be 1/12 of .230 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $1,000,000,000, the fee payable for that month based on the portion of
the average of such values in excess of $1,000,000,000 shall be 1/12 of .224 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $2,500,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$2,500,000,000 shall be 1/12 of .218 of 1 percent of such portion; provided
that, for any calendar month during which the average of such values exceeds
$5,000,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $5,000,000,000 shall be 1/12 of .208 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $7,500,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $7,500,000,000
shall be 1/12 of .205 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $10,000,000,000,
5
<PAGE>
the fee payable for that month based on the portion of the average of such
values in excess of $10,000,000,000 shall be 1/12 of .202 of 1 percent of such
portion; and provided that, for any calendar month during which the average of
such values exceeds $12,500,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $12,500,000,000 shall be 1/12
of .198 of 1 percent of such portion.
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.
3. Net Asset Value. The net asset value for the Financial Services
Series shall be calculated as the Board of Trustees of the Fund may determine
from time to time in accordance with the provisions of the Investment Company
Act. On each day when net asset value is not calculated, the net asset value of
the Financial Services Series shall be deemed to be the net asset value as of
the close of business on the last day on which such calculation was made for the
purpose of the foregoing computations.
4. Duration and Termination.
(a) This Agreement shall become effective with respect to the
Financial Services Series on the date hereof and shall remain in full force
until February 1, 2003, unless sooner terminated or not annually approved as
hereinafter provided. Notwithstanding the foregoing, this Agreement shall
continue in force through February 1, 2003, and from year to year thereafter,
only as long as such continuance is specifically approved at least annually and
in the manner required by the Investment Company Act and the rules and
regulations thereunder, with the first annual renewal to be coincident with the
next renewal of the Management Agreement.
(b) This Agreement shall automatically terminate in the event
of its assignment or in the event of the termination of the Management
Agreement. In addition, Adviser has the right to terminate this Agreement upon
immediate notice if the Sub-Adviser
6
<PAGE>
becomes statutorily disqualified from performing its duties under this Agreement
or otherwise is legally prohibited from operating as an investment adviser.
(c) This Agreement may be terminated at any time, without the
payment by the Fund of any penalty, by the Board of Trustees of the Fund, or by
vote of a majority of the outstanding voting securities of the Financial
Services Series, or by the Adviser. The Fund may effect termination of this
Agreement by action of the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Financial Services Series
on sixty (60) days written notice to the Adviser and the Sub-Adviser. The
Adviser may effect termination of this Agreement on sixty (60) days written
notice to the Sub-Adviser.
(d) Sub-Adviser may not terminate this Agreement prior to the
third anniversary of the date of this Agreement. Sub-Adviser may terminate this
Agreement effective on or after the third anniversary of the date of this
Agreement upon ninety (90) days written notice to the Adviser.
(e) The terms "assignment" 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.
5. Representations and Warranties. The Sub-Adviser hereby represents
and warrants as follows:
(a) The Sub-Adviser is registered with the SEC as an
investment adviser under the Advisers Act, and such registration is current,
complete and in full compliance with all material applicable provisions of the
Advisers Act and the rules and regulations thereunder;
(b) The Sub-Adviser has all requisite authority to enter into,
execute, deliver and perform the Sub-Adviser's obligations under this Agreement;
(c) The Sub-Adviser's performance of its obligations under
this Agreement does not conflict with any law, regulation or order to which the
Sub-Adviser is subject; and
7
<PAGE>
(d) The Sub-Adviser has reviewed the portion of (i) the
registration statement filed with the SEC, as amended from time to time for the
Fund ("Registration Statement"), and (ii) the Fund's prospectus and supplements
thereto, in each case in the form received from the Adviser with respect to the
disclosure about the Sub-Adviser and the Financial Services Series of which the
Sub-Adviser has knowledge (the "Sub-Adviser and Financial Services Information")
and except as advised in writing to the Adviser such Registration Statement,
prospectus and any supplement contain, as of its date, no untrue statement of
any material fact of which Sub-Adviser has knowledge and do not omit any
statement of a material fact of which Sub-Adviser has knowledge which was
required to be stated therein or necessary to make the statements contained
therein not misleading.
6. Covenants. The Sub-Adviser hereby covenants and agrees that, so long
as this Agreement shall remain in effect:
(a) The Sub-Adviser shall maintain the Sub-Adviser's
registration as an investment adviser under the Advisers Act, and such
registration shall at all times remain current, complete and in full compliance
with all material applicable provisions of the Advisers Act and the rules and
regulations thereunder;
(b) The Sub-Adviser's performance of its obligations under
this Agreement shall not conflict with any law, regulation or order to which the
Sub-Adviser is then subject;
(c) The Sub-Adviser shall at all times comply in all material
respects with the Advisers Act and the Investment Company Act, and all rules and
regulations thereunder, and all other applicable laws and regulations, and the
Registration Statement, prospectus and any supplement and with any applicable
procedures adopted by the Fund's Board of Trustees, provided that such
procedures are substantially similar to those applicable to similar funds for
which the Board of Trustees of the Fund is responsible and that such procedures
are identified in writing to the Sub-Adviser;
(d) The Sub-Adviser shall promptly notify Adviser and the Fund
upon the occurrence of any event that might disqualify or prevent the
Sub-Adviser from performing its duties under this
8
<PAGE>
Agreement. The Sub-Adviser further agrees to notify Adviser of any changes that
would cause the Registration Statement or prospectus for the Fund to contain any
untrue statement of a material fact or to omit to state a material fact which is
required to be stated therein or is necessary to make the statements contained
therein not misleading, in each case relating to Sub-Adviser and Financial
Services Information; and
(e) For the entire time this Agreement is in effect and for a
period of two years thereafter, the Sub-Adviser shall maintain a claims made
bond issued by a reputable fidelity insurance company against larceny and
embezzlement, covering each officer and employee of Sub-Adviser, at a minimum
level of $2 million which provide coverage for acts or alleged acts which
occurred during the period of this Agreement.
7. Use of Names.
(a) The Sub-Adviser acknowledges and agrees that the names
Kemper, Zurich and Scudder, and abbreviations or logos associated with those
names, are the valuable property of Adviser and its affiliates; that the Fund,
Adviser and their affiliates have the right to use such names, abbreviations and
logos; and that the Sub-Adviser shall use the names Zurich, Kemper and Scudder,
and associated abbreviations and logos, only in connection with the
Sub-Adviser's performance of its duties hereunder. Further, in any communication
with the public and in any marketing communications of any sort, Sub-Adviser
agrees to obtain prior written approval from Adviser before using or referring
to Kemper Value Fund, Kemper, Scudder, Zurich or Kemper-Dreman Financial
Services Fund or any abbreviations or logos associated with those names;
provided that nothing herein shall be deemed to prohibit the Sub-Adviser from
referring to the performance of the Kemper-Dreman Financial Services Fund in the
Sub-Adviser's marketing material as long as such marketing material does not
constitute "sales literature or "advertising" for the Financial Services Series,
as those terms are used in the rules, regulations and guidelines of the SEC and
the National Association of Securities Dealers, Inc.
9
<PAGE>
(b) Adviser acknowledges that "Dreman" is distinctive in
connection with investment advisory and related services provided by the
Sub-Adviser, the "Dreman" name is a property right of the Sub-Adviser, and the
"Dreman" name as used in the name of the Financial Services Series is understood
to be used by the Fund upon the conditions hereinafter set forth; provided that
the Fund may use such name only so long as the Sub-Adviser shall be retained as
the investment sub-adviser of the Financial Services Series pursuant to the
terms of this Agreement.
(c) Adviser acknowledges that the Fund and its agents may use
the "Dreman" name in the name of the Financial Services Series for the period
set forth herein in a manner not inconsistent with the interests of the
Sub-Adviser and that the rights of the Fund and its agents in the "Dreman" name
are limited to their use as a component of the Financial Services Series name
and in connection with accurately describing the activities of the Financial
Services Series, including use with marketing and other promotional and
informational material relating to the Financial Services Series. In the event
that the Sub-Adviser shall cease to be the investment sub-adviser of the
Financial Services Series, then the Fund at its own or the Adviser's expense,
upon the Sub-Adviser's written request: (i) shall cease to use the Sub-Adviser's
name as part of the name of the Financial Services Series or for any other
commercial purpose (other than the right to refer to the Financial Services
Series' former name in the Fund's Registration Statement, proxy materials and
other Fund documents to the extent required by law and, for a reasonable period
the use of the name in informing others of the name change); and (ii) shall use
its best efforts to cause the Fund's officers and directors to take any and all
actions which may be necessary or desirable to effect the foregoing and to
reconvey to the Sub-Adviser all rights which the Fund may have to such name.
Adviser agrees to take any and all reasonable actions as may be necessary or
desirable to effect the foregoing and Sub-Adviser agrees to allow the Fund and
its agents a reasonable time to effectuate the foregoing.
(d) The Sub-Adviser hereby agrees and consents to the use of
the Sub-Adviser's name upon the foregoing terms and conditions.
10
<PAGE>
8. Standard of Care. Except as may otherwise be required by law, and
except as may be set forth in paragraph 9, the Sub-Adviser shall not be liable
for any error of judgment or of law or for any loss suffered by the Fund, the
Financial Services Series or the Adviser in connection with the matters to which
this Agreement relates, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser in the performance of
its obligations and duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
9. Indemnifications.
(a) The Sub-Adviser agrees to indemnify and hold harmless
Adviser and the Fund against any losses, expenses, claims, damages or
liabilities (or actions or proceedings in respect thereof), to which Adviser or
the Fund may become subject arising out of or based on the breach or alleged
breach by the Sub-Adviser of any provisions of this Agreement or any wrongful
action or alleged wrongful action by the Sub-Adviser; provided, however, that
the Sub-Adviser shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Sub-Adviser and the Adviser or the Fund, as the case may be,
shall have concluded in a written opinion, that such loss, expense, claim,
damage or liability resulted primarily from the Adviser's or the Fund's willful
misfeasance, bad faith or gross negligence or by reason of the reckless
disregard by the Adviser or the Fund of its duties. The foregoing
indemnification shall be in addition to any rights that the Adviser or the Fund
may have at common law or otherwise. The Sub-Adviser's agreements in this
paragraph shall, upon the same terms and conditions, extend to and inure to the
benefit of each person who may be deemed to control the Adviser or the Fund, be
controlled by the Adviser or the Fund, or be under common control with the
Adviser or the Fund and their affiliates, trustees, officers, employees and
agents. The Sub-Adviser's agreement in this paragraph shall also extend to any
of the Fund's, Financial Services Series', and Adviser's successors or the
successors of
11
<PAGE>
the aforementioned affiliates, trustees, officers, employees or agents.
(b) The Adviser agrees to indemnify and hold harmless the Sub-Adviser
against any losses, expenses, claims, damages or liabilities (or actions or
proceedings in respect thereof), to which the Sub-Adviser may become subject
arising out of or based on the breach or alleged breach by the Adviser of any
provisions of this Agreement or the Management Agreement, or any wrongful action
or alleged wrongful action by the Adviser or its affiliates in the distribution
of the Fund's shares, or any wrongful action or alleged wrongful action by the
Fund other than wrongful action or alleged wrongful action that was caused by
the breach by Sub-Adviser of the provisions of this Agreement; provided,
however, that the Adviser shall not be liable under this paragraph in respect of
any loss, expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Adviser and the Sub-Adviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Sub-Adviser's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Sub-Adviser of its duties. The foregoing
indemnification shall be in addition to any rights that the Sub-Adviser may have
at common law or otherwise. The Adviser's agreements in this paragraph shall,
upon the same terms and conditions, extend to and inure to the benefit of each
person who- may be deemed to control the Sub-Adviser, be controlled by the
Sub-Adviser or be under common control with the Sub-Adviser and to each of the
Sub-Adviser's and each such person's respective affiliates, trustees, officers,
employees and agents. The Adviser's agreements in this paragraph shall also
extend to any of the Sub-Adviser's successors or the successors of the
aforementioned affiliates, trustees, officers, employees or agents.
(c) Promptly after receipt by a party indemnified under
paragraphs 9(a) and 9(b) above of notice of the commencement of any action,
proceeding, or investigation for which indemnification will be sought, such
indemnified party shall promptly notify the indemnifying party in writing; but
the
12
<PAGE>
omission so to notify the indemnifying party shall not relieve it from any
liability which it may otherwise have to any indemnified party unless such
omission results in actual material prejudice to the indemnifying party. In case
any action or proceeding shall be brought against any indemnified party, and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, individually or
jointly with any other indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of any action or proceeding, the indemnifying party shall not be liable
to the indemnified party for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. If the indemnifying party does not elect to
assume the defense of any action or proceeding, the indemnifying party on a
monthly basis shall reimburse the indemnified party for the reasonable legal
fees and other costs of defense thereof. Regardless of whether or not the
indemnifying party shall have assumed the defense of any action or proceeding,
the indemnified party shall not settle or compromise the action or proceeding
without the prior written consent of the indemnifying party, which shall not be
unreasonably withheld.
10. Survival. 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. Notices. 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.
12. Governing Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of New York.
13. Miscellaneous.
(a) The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
13
<PAGE>
of the provisions hereof or otherwise affect their construction or effect.
(b) Terms not defined herein shall have the meaning set forth
in the Fund's prospectus.
(c) 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 WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
SCUDDER KEMPER INVESTMENTS, INC.
By:
---------------------------------------------------
Title: Executive Vice President, Dir. of Marketing
DREMAN VALUE MANAGEMENT, L.L.C.
By:
---------------------------------------------------
Title: Chairman
FOR THE PURPOSE OF ACCEPTING ITS OBLIGATIONS UNDER
SECTION 7 HEREIN ONLY
KEMPER EQUITY TRUST
By:
---------------------------------------------------
Title: President
14
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 2nd day of March, 1998 between KEMPER EQUITY 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
By: ____________________
Mark S. Casady
President
ATTEST:
___________________________
Title:___________________
KEMPER DISTRIBUTORS, INC.
By:______________________
Title:___________________
ATTEST:
___________________________
Title:_____________________
7
AGENCY AGREEMENT
AGREEMENT dated the 2nd day of March, 1998, by and between KEMPER EQUITY 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
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.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with respect
to all shares of Fund being offered for sale at any
time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
E. Fund and its Trustees are empowered under applicable
laws and by the Fund's Agreement and Declaration of
Trust and Bylaws to enter into and perform this
Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement,
Fund hereby employs and appoints Service Company as
Transfer Agent and Dividend Disbursing Agent effective
the date hereof.
B. Service Company hereby accepts such employment and
appointment and agrees that it will act as Fund's
Transfer Agent and Dividend Disbursing Agent. Service
Company agrees that it will also act as agent in
connection with Fund's periodic withdrawal payment
accounts and other open-account or similar plans for
shareholders, if any.
C. Service Company agrees to provide the necessary
facilities, equipment and personnel to perform its
duties and obligations hereunder in accordance with
industry practice.
D. Fund agrees to use all reasonable efforts to deliver to
Service Company in Kansas City, Missouri, as soon as
they are available, all its shareholder account
records.
E. Subject to the provisions of Sections 20 and 21 hereof,
Service Company agrees that it will perform all the
usual and ordinary services of Transfer Agent and
Dividend Disbursing Agent and as agent for the various
shareholder accounts, including, without limitation,
the following: issuing, transferring and cancelling
share certificates, maintaining all shareholder
accounts, preparing shareholder meeting lists, mailing
proxies, receiving and tabulating proxies, mailing
shareholder reports and prospectuses, withholding
federal income taxes, preparing and mailing checks for
disbursement of income and capital gains dividends,
preparing and filing all required U.S. Treasury
Department information returns for all shareholders,
preparing and mailing confirmation forms to
shareholders and dealers with respect to all purchases
and liquidations of Fund shares and other transactions
in shareholder accounts for which confirmations are
required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions of
Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder by
Service Company as Transfer Agent and Dividend
Disbursing Agent, Fund will pay to Service Company from
time to time compensation as agreed upon for all
services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to by Fund and Service Company.
The initial agreement regarding compensation is
attached as Exhibit A.
B. Fund agrees to promptly reimburse Service Company for
all reasonable out-of-pocket expenses or advances
incurred by Service Company in connection with the
performance of services under this Agreement including,
but not limited to, postage (and first class mail
insurance in connection with mailing share
certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery,
and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers or
shareholders, microfilm used each year to record the
previous year's transactions in shareholder accounts
and computer tapes used for permanent storage of
records and cost of insertion of materials in mailing
envelopes by outside firms. Service Company may, at its
option, arrange to have various service providers
submit invoices directly to the Fund for payment of
out-of-pocket expenses reimbursable hereunder.
6. Efficient Operation of Service Company System.
A. In connection with the performance of its services
under this Agreement, Service Company is responsible
for the accurate and efficient functioning of its
system at all times, including:
(1) The accuracy of the entries in Service
Company's records reflecting purchase and
redemption orders and other instructions
received by Service Company from dealers,
shareholders, Fund or its principal
underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from Service Company's records or
data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from Fund.
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers,
shareholders or Fund or other authorized
persons.
(5) The deposit daily in Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the rightfulness of transfers,
redemptions and other shareholder account
transactions, all in conformance with
Service Company's present procedures with
such changes as may be deemed reasonably
appropriate by Service Company or as may be
reasonably approved by or on behalf of Fund.
(7) The maintenance of a current duplicate set
of Fund's essential or required records, as
agreed upon from time to time by Fund and
Service Company, at a secure distant
location, in form available and usable
forthwith in the event of any breakdown or
disaster disrupting its main operation.
7. Indemnification.
A. Fund shall indemnify and hold Service Company harmless
from and against any and all claims, actions, suits,
losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or
attributable to any action or omission by Service
Company pursuant to this Agreement or in connection
with the agency relationship created by this Agreement,
provided that Service Company has acted in good faith,
without negligence and without willful misconduct.
B. Service Company shall indemnify and hold Fund harmless
from and against any and all claims, actions, suits,
losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or
attributable to any action or omission by Service
Company pursuant to this Agreement or in connection
with the agency relationship created by this Agreement,
provided that Service Company has not acted in good
faith, without negligence and without willful
misconduct.
C. In order that the indemnification provisions contained
in this Section 7 shall apply, upon the assertion of a
claim for which either party (the "Indemnifying Party")
may be required to provide indemnification hereunder,
the party seeking indemnification (the "Indemnitee")
shall promptly notify the Indemnifying Party of such
assertion, and shall keep such party advised with
respect to all developments concerning such claim. The
Indemnifying Party shall be entitled to assume control
of the defense and the negotiations, if any, regarding
settlement of the claim. If the Indemnifying Party
assumes control, the Indemnitee shall have the option
to participate in the defense and negotiations of such
claim at its own expense. The Indemnitee shall in no
event confess, admit to, compromise, or settle any
claim for which the Indemnifying Party may be required
to indemnify it except with the prior written consent
of the Indemnifying Party, which shall not be
unreasonably withheld.
8. Certain Covenants of Service Company and Fund.
A. All requisite steps will be taken by Fund from time to
time when and as necessary to register the Fund's
shares for sale in all states in which Fund's shares
shall at the time be offered for sale and require
registration. If at any time Fund receives notice of
any stop order or other proceeding in any such state
affecting such registration or the sale of Fund's
shares, or of any stop order or other proceeding under
the Federal securities laws affecting the sale of
Fund's shares, Fund will give prompt notice thereof to
Service Company.
B. Service Company hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to Fund
for safekeeping of share certificates, check forms, and
facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of,
such certificates, forms and devices. Further, Service
Company agrees to carry insurance, as specified in
Exhibit B hereto, with insurers reasonably acceptable
to Fund and in minimum amounts that are reasonably
acceptable to Fund, which will not be changed without
the consent of Fund, which consent shall not be
unreasonably withheld, and which will be expanded in
coverage or increased in amounts from time to time if
and when reasonably requested by Fund. If Service
Company determines that it is unable to obtain any such
insurance upon commercially reasonable terms, it shall
promptly so advise Fund in writing. In such event, Fund
shall have the right to terminate this Agreement upon
30 days notice.
C. To the extent required by Section 31 of the Investment
Company Act of 1940 and Rules thereunder, Service
Company agrees that all records maintained by Service
Company relating to the services to be performed by
Service Company under this Agreement are the property
of Fund and will be preserved and will be surrendered
promptly to Fund on request.
D. Service Company agrees to furnish Fund semi-annual
reports of its financial condition, consisting of a
balance sheet, earnings statement and any other
reasonably available financial information reasonably
requested by Fund. The annual financial statements will
be certified by Service Company's certified public
accountants.
E. Service Company represents and agrees that it will use
all reasonable efforts to keep current on the trends of
the investment company industry relating to shareholder
services and will use all reasonable efforts to
continue to modernize and improve its system without
additional cost to Fund.
F. Service Company will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business hours.
G. If Service Company is prevented from complying, either
totally or in part, with any of the terms or provisions
of this Agreement, by reason of fire, flood, storm,
strike, lockout or other labor trouble, riot, war,
rebellion, accidents, acts of God, equipment, utility
or transmission failure or damage, and/or any other
cause or casualty beyond the reasonable control of
Service Company, whether similar to the foregoing
matters or not, then upon written notice to Fund, the
requirements of this Agreement that are affected by
such disability, to the extent so affected, shall be
suspended during the period of such disability;
provided, however, that Service Company shall make
reasonable effort to remove such disability as soon as
possible. During such period, Fund may seek alternate
sources of service without liability hereunder; and
Service Company will use all reasonable efforts to
assist Fund to obtain alternate sources of service.
Service Company shall have no liability to Fund for
nonperformance because of the reasons set forth in this
Section 8.G; but if a disability that, in Fund's
reasonable belief, materially affects Service Company's
ability to perform its obligations under this Agreement
continues for a period of 30 days, then Fund shall have
the right to terminate this Agreement upon 10 days
written notice to Service Company.
9. Adjustment.
In case of any recapitalization, readjustment or other change
in the structure of Fund requiring a change in the form of
share certificates, Service Company will issue or register
certificates in the new form in exchange for, or in transfer
of, the outstanding certificates in the old form, upon
receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of
Fund in the new form under the Securities
Act of 1933, and any other applicable
federal or state laws.
(2) To the effect that the issued shares in the
new form are, and all unissued shares will
be when issued, validly issued, fully paid
and non-assessable.
10. Share Certificates.
Fund will furnish Service Company with a sufficient supply of
blank share certificates and from time to time will renew such
supply upon the request of Service Company. Such certificates
will be signed manually or by facsimile signatures of the
officers of Fund authorized by law and Fund's Bylaws to sign
share certificates and, if required, will bear the trust seal
or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
Fund will file promptly with Service Company written notice of
any change in the officers authorized to sign share
certificates, written instructions or requests, together with
two signature cards bearing the specimen signature of each
newly authorized officer, all as certified by an appropriate
officer of the Fund. In case any officer of Fund who will have
signed manually or whose facsimile signature will have been
affixed to blank share certificates will die, resign, or be
removed prior to the issuance of such certificates, Service
Company may issue or register such share certificates as the
share certificates of Fund 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.
<PAGE>
13. Instructions, Opinion of Counsel and Signatures.
At any time Service Company may apply to any officer of Fund
for instructions, and may consult with legal counsel for Fund
at the expense of Fund, or with its own legal counsel at its
own expense, with respect to any matter arising in connection
with the agency; and it will not be liable for any action
taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. Service
Company is authorized to act on the orders, directions or
instructions of such persons as the Board of Trustees of Fund
shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been
signed by the proper person or persons; and Service Company
will not be held to have notice of any change of authority of
any person so authorized by Fund until receipt of written
notice thereof from Fund. Service Company will also be
protected in recognizing share certificates that it reasonably
believes to bear the proper manual or facsimile signatures of
the officers of Fund, and the proper countersignature of any
former Transfer Agent or Registrar, or of a Co-Transfer Agent
or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by Service Company of its appointment as
Transfer Agent and Dividend Disbursing Agent, and all
documents filed in connection with such appointment and
thereafter in connection with the agencies, will be subject to
the approval of legal counsel for Service Company, which
approval will not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Agreement and Declaration of Trust of
Fund and copies of all amendments thereto will be certified by
the appropriate official of The Commonwealth of Massachusetts;
and if such Agreement and Declaration of Trust and amendments
are required by law to be also filed with a county, city or
other officer or official body, a certificate of such filing
will appear on the certified copy submitted to Service
Company. A copy of the order or consent of each governmental
or regulatory authority required by law for the issuance of
Fund shares will be certified by the Secretary or Clerk of
such governmental or regulatory authority, under proper seal
of such authority. The copy of the Bylaws and copies of all
amendments thereto and copies of resolutions of the Board of
Trustees of Fund will be certified by the Secretary or an
Assistant Secretary of Fund.
16. Records.
Service Company will maintain customary records in connection
with its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph (2)(iv) of
paragraph (b) of Rule 31a-1 under the Investment Company Act
of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
Service Company will send periodically to Fund, or to where
designated by the Secretary or an Assistant Secretary of Fund,
all books, documents, and all records no longer deemed needed
for current purposes and share certificates which have been
cancelled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates
will not be destroyed by Fund without the consent of Service
Company (which consent will not be unreasonably withheld), but
will be safely stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of
Fund and upon being furnished with a certified copy
of a resolution of the Board of Trustees authorizing
such original issue, an opinion of 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.
<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 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 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.
(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.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other
financial records (other than statements and records
relating solely to Fund's business dealings with
Service Company) and all manuals, systems and other
technical information and data, not publicly disclosed,
relating to Service Company's operations and programs
furnished to it by Service Company pursuant to this
Agreement and will not disclose the same to any person
except at the request or with the consent of Service
Company. Notwithstanding anything to the contrary in
this Section 22.B, if an attempt is made pursuant to
subpoena or other legal process to require Fund to
disclose or produce any of the aforementioned manuals,
systems or other technical information and data, Fund
shall give Service Company prompt notice thereof prior
to disclosure or production so that Service Company
may, at its expense, resist such attempt.
23. Survival of Representations and Warranties.
All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state (except as to Section 24.G hereof which shall be
governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define or
limit any of the provisions hereof or otherwise affect
their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be 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 EQUITY TRUST, on behalf of
Kemper-Dreman Financial Services Fund ATTEST:
By:
Mark S. Casady Title:
President
KEMPER SERVICE COMPANY ATTEST:
By:
Title:
TITLE:
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:
Non-negotiable securities mailed to domestic locations via registered mail.
Non-negotiable securities mailed to domestic locations via first-class or
certified mail. Non-negotiable securities mailed to foreign locations via
registered mail. Negotiable securities mailed to all locations via
registered mail.
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 2nd day of March, 1998 between Kemper Equity Trust
(the "Fund"), on behalf of Kemper-Dreman Financial Services 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
<PAGE>
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-Dreman Financial Services 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 EQUITY TRUST, on behalf of
Kemper-Dreman Financial Services Fund
By: _______________________
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: ___________________________
Title:
5
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 2nd day of March, 1998 by and between KEMPER-DREMAN
FINANCIAL SERVICES FUND, a series of Kemper Equity Trust, a Massachusetts
business trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund (except assets attributable to Class I Shares). The current
fee
<PAGE>
schedule is set forth as Appendix I hereto. The administrative service fee will
be calculated separately for each class of each series of the Fund as an expense
of each such class; provided, however, no administrative service fee shall be
payable with respect to Class I Shares. For the month and year in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during such month and year, respectively. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
2
<PAGE>
representatives and not individually, and the obligations o the Fund thereunder
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
8. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 7 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER EQUITY TRUST, on behalf of
Kemper-Dreman Financial Services Fund
By: _________________________
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: _________________________
TITLE: _______________________
Dated: March 1, 1998
3
<PAGE>
APPENDIX I
KEMPER EQUITY 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 EQUITY TRUST, on behalf of
Kemper-Dreman Financial Services Fund
By: ________________________
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: ______________________
TITLE: ____________________
Dated: March 2, 1998
4
LAW OFFICES OF
DECHERT PRICE & RHOADS
TEN POST OFFICE SQUARE SOUTH
BOSTON, MA 02109-4603
February 26, 1998
Kemper Equity Trust in respect of
Kemper-Dreman Financial Services Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Re: Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 333-43815) (the "Registration Statement")
Gentlemen:
Kemper Equity Trust (the "Trust") is a trust created under a written
Declaration of Trust dated January 6, 1998, as executed and delivered in Boston,
Massachusetts (the "Declaration of Trust"). The beneficial interest thereunder
is represented by transferable shares with a par value of $.01 per share (the
"Shares"). The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees
are empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares of beneficial interest authorized to be issued under the
Declaration of Trust is unlimited. Under Article V, Section 5.11, the Trustees
may authorize the division of shares into two or more series. By written
instrument dated January 6, 1998, the Trustees established the initial series of
the Trust designated as Kemper-Dreman Financial Services Fund (the "Fund").
<PAGE>
Scudder Equity Trust
February 26, 1998
Page 2
By vote adopted on January 6, 1998, the sole initial Trustee of the
Trust authorized the President, any Vice President, the Secretary or any
Assistant Secretary, and the Treasurer, from time to time, to cause to be
registered with the Securities and Exchange Commission an indefinite number of
Shares and to cause such Shares to be offered and sold to the public.
We understand that you are about to file Pre-Effective Amendment No. 1
to the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of said Shares, comprising the Shares covered by Pre-Effective Amendment
No. 1 to the Registration Statement, has been duly taken, and that all such
Shares may be legally and validly issued for cash, and when sold will be fully
paid and non-assessable by the Trust upon receipt by the Trust or its agent of
consideration for such Shares in accordance with the terms in the Registration
Statement, subject to compliance with the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement.
Very truly yours,
/s/DECHERT PRICE & RHOADS
DECHERT PRICE & RHOADS
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors
and Reports to Shareholders" and to the use of our report on the statement of
net assets of Kemper-Dreman Financial Services Fund dated February 25, 1998, in
the Registration Statement (Form N-1A) and its incorporation by reference in the
related Prospectus and Statement of Additional Information of Kemper Equity
Trust, filed with the Securities and Exchange Commission in this Pre-Effective
Amendment No. 1 to the Registration Statement under the Securities Act of 1933
(Registration No. 333-43815) and this Amendment No. 1 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-08599).
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
February 25, 1998
