Filed electronically with the Securities and Exchange Commission
on January 29, 1999
File No. 33-43815
File No. 811-0599
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 2 / X /
---
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 3 / X /
--
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)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ / On February 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485
/ X / On February 1, 1999 pursuant to paragraph (a)(3) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Part C - Page 1
<PAGE>
[KEMPER LOGO] KEMPER FUNDS
Kemper Equity Funds
Value Style
PROSPECTUS February 1, 1999
KEMPER EQUITY FUNDS VALUE STYLE
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 621-1048
This prospectus describes a choice of seven funds managed by Scudder Kemper
Investments, Inc.
Kemper Contrarian Fund
Kemper-Dreman Financial Services Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Relative Value Fund
Kemper Small Cap Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund*
* Kemper Value Fund refers to the Kemper shares of Value Fund.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
VALUE STOCK INVESTING
INVESTMENT APPROACH
Each of the funds presented in this prospectus uses a value approach to
investing -- that is, they look for common stocks that the investment manager
believes are undervalued.
The principal factors considered by a manager in identifying the value of a
stock may include:
o price-to-earnings (P/E) ratio;
o price-to-book (P/B) ratio;
o price-to-cash flow (P/CF) ratio; and/or
o dividend yield.
The objective of value investing is to reduce the risk of owning stocks by
investing in companies with sound finances whose current market prices are low
in relation to earnings or other measures of value. In determining whether a
company's finances are sound, the investment manager considers, among other
things, its ability to meet debt obligations as well as other liabilities.
In selecting among stocks for the funds' portfolios, the investment manager may
consider factors such as the following about the issuer:
o financial strength;
o book-to-market value;
o earnings growth rates;
o dividend growth rates;
o return on equity; and/or
o estimates of future earnings.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security. The value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.
Stock Market. Each fund's returns and net asset value will go up and down, and
it is possible to lose money invested in a fund. Stock market movements will
affect the funds' share prices on a daily basis. Declines are possible both in
the overall stock market or in the types of securities held by the funds.
Equity Investing. An investment in the common stock of a company represents a
proportionate ownership interest in that company. Therefore, the fund
participates in the success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered a greater potential for
gain on
2 Value Stock Investing
<PAGE>
investment. However, the market value of common stocks can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Value Investing. The determination that a stock is undervalued is subjective;
the market may not agree, and the stock's price may not rise to what the
investment manager believes is its full value. It may even decrease in value.
However, because of the fund's focus on undervalued stocks, the fund's downside
risk may be less than with other small company stocks since value stocks are in
theory already underpriced.
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives.
Inflation. There is a possibility that the rising prices of goods and services
may have the effect of offsetting a fund's real return.
Value Stock Investing 3
<PAGE>
ABOUT THE FUNDS
KEMPER CONTRARIAN FUND
Investment objective and strategies
Kemper Contrarian Fund seeks long-term capital appreciation with current income
as its secondary objective. Except as otherwise indicated, the fund's investment
objective and policies may be changed without a vote of shareholders.
This fund primarily invests in a diversified portfolio of the stocks of large
U.S. companies that the investment manager believes to be undervalued. Such
companies usually have a minimum market capitalization of $1 billion.
The investment manager looks for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividends yields above the market average;
o sound finances; and
o perceived intrinsic value.
The fund may invest 25% or more of its total assets in one or more market
sectors, such as the financial services sector.
The fund may be appropriate for investors who seek to add a core holding to
establish the foundation of a value-oriented portfolio or a value fund to
diversify their growth-equity investments.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. To the extent that the fund focuses its investments in a
market sector, financial, economic, business and other developments affecting
issuers in that sector may have a greater effect on the fund than if it had not
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
4 Kemper Contrarian Fund
<PAGE>
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1989.................. 18.29%
1990.................. -6.08%
1991.................. 26.53%
1992.................. 11.32%
1993.................. 9.07%
1994.................. -.03%
1995.................. 44.57%
1996.................. 14.42%
1997.................. 28.73%
1998.................. 19.17%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 18.90% (the first quarter of 1991), and the fund's lowest
return for a calendar quarter was -20.59% (the third quarter of 1990).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C S&P 500
- ----------------- ------- ------- ------- -------
One Year 12.32% 15.08% 17.92% 28.60%
Five Years 19.05% -- -- 24.05%
Ten Years 15.11% -- -- 19.19%
Since Class Inception** 14.64% 21.58% 21.86% *
- ----------
* Index returns for the life of each class: 18.82% (3/31/88) for Class A and
28.88% (8/31/95) for Class B and C shares.
** Inception date for Class A, B and C shares is 3/18/88, 9/11/95 and
9/11/95, respectively.
The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of of
dividends and, unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper Contrarian Fund 5
<PAGE>
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other expenses 0.62% 0.81% 0.90%
Total Annual Fund Operating Expenses 1.37% 2.31% 2.40%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $706 $634 $343
3 Years $984 $1,021 $748
5 Years $1,282 $1,435 $1,280
10 Years $2,127 $2,193 $2,736
6 Kemper Contrarian Fund
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $706 $234 $243
3 Years $984 $721 $748
5 Years $1,282 $1,235 $1,280
10 Years $2,127 $2,193 $2,736
Principal strategies and investments
The fund invests primarily in a diversified portfolio of the stocks of large
U.S. companies that the investment manager believes are undervalued. Securities
may be undervalued as a result of overreaction by investors to unfavorable news
about a company, industry or the stock markets in general or as a result of a
market decline, poor economic conditions or actual or anticipated unfavorable
developments affecting the company.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After the manager
screens for low price-to-earnings ratios, he analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that the investment manager believes have strong potential for long-term growth.
The investment manager analyzes earnings and dividend growth of companies and
seeks those investments that have had 5- and 10-year track records of
consistent, above-market earnings and dividend growth. The fund's style is to
own strong companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis. All of the research is done in-house and the portfolio
management team makes final investment decisions.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The manager also monitors a universe of 100 to 125
potentially promising candidates for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager may
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
Kemper Contrarian Fund 7
<PAGE>
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
8 Kemper Contrarian Fund
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Investment objective and strategies
The fund seeks to provide long-term capital appreciation. Except as otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
The fund primarily invests in a diversified portfolio of U.S. common stocks and
other equity securities of companies in the financial services sector believed
by the Fund's investment manager to be undervalued. The investment manager looks
for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividend yields above the market average;
o sound finances; and
o perceived intrinsic value.
The fund may be a good choice for more aggressive investors seeking to pursue
maximum capital appreciation, and for investors who are comfortable with a
concentrated investment in financial services stocks and other financial
services equity securities.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. The fund's concentration in investments in the financial
services sector creates greater risk than investment across various sectors or
industries, since the financial, economic, and business developments affecting
issuers in this sector may have a greater effect on the fund than if it had not
concentrated its assets in the financial services sector. In addition, an
investment in the fund may involve significantly greater risks and greater
volatility than a diversified equity mutual fund that is invested in issuers in
various sectors or industries. The fund is subject to the risk that a particular
group of related stocks will decline in price due to sector-specific
developments. As a result, the fund should only be considered a long-term
investment and part of a well-diversified portfolio.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper-Dreman Financial Services Fund 9
<PAGE>
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.80% 0.79% 0.76%
Total Annual Fund Operating Expenses 1.55% 2.29% 2.26%
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.36%, Class B to 2.14% and Class C to 2.11%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement has been changed for
the fiscal year ending September 30, 1999 as follows: the Total Annual Fund
Operating Expenses will be limited to 1.30% for Class A, 2.24% for Class B, and
2.21% for Class C, and this arrangement may be discontinued at any time. As a
result, for the fiscal year ended September 30, 1998, "Total Annual Fund
Operating Expenses" were reduced by 0.19%, 0.15% and 0.15% for Class A, Class B
and Class C and actual total annual fund operating expenses were 1.36% for Class
A, 2.14% for Class B and 2.11% for Class C. The information contained in the
above table and the example below reflects the expenses of the fund without
taking into account any applicable fee waivers and/or reimbursements.
10 Kemper-Dreman Financial Services Fund
<PAGE>
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $724 $632 $329
3 Years $1,036 $1,015 $706
5 Years $1,371 $1,425 $1,210
10 Years $2,314 $2,270 $2,595
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $724 $232 $229
3 Years $1,036 $715 $706
5 Years $1,371 $1,225 $1,210
10 Years $2,314 $2,270 $2,595
Principal strategies and investments
The Fund concentrates its investments in securities of financial services
companies, including:
o commercial banks;
o insurance companies;
o thrifts;
o consumer finance companies;
o commercial finance companies;
o leasing companies;
o securities brokerage firms;
o asset management firms; and
o government-sponsored financial enterprises.
In the opinion of the Fund's investment manager, the Fund offers investors the
opportunity to participate in the substantial long-term appreciation potential
of companies in the financial services sector.
Kemper-Dreman Financial Services Fund 11
<PAGE>
Under normal circumstances, the Fund will invest at least 65% of its assets in
equity securities of companies in the financial services industry. A company
will be considered to be within the financial services industry if at least 50%
of its assets, revenues or net income are related to or derived from the
financial services industry. Earnings and cash flow analyses as well as a
company's conventional dividend payout ratio are important factors in the
investment process. The fund may invest up to 35% of its assets in
investment-grade corporate debt securities.
The fund invests principally in a diversified portfolio of financial service
companies whose prices appear to be temporarily depressed due to short-term
fundamental factors. Securities may be undervalued as a result of overreaction
by investors to unfavorable news about a company, the financial services
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After screening for
low price-to-earnings ratios, the manager analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that have strong potential for long-term growth.
The investment manager analyzes earnings and dividends growth of companies and
seeks those investments that have had 5- and 10-year track records of consistent
above-market earnings and dividend growth. The fund's style is to own strong
companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The investment manager also monitors a universe of 100
to 125 potentially promising securities for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their P/Es rise above that of the market. The manager may choose to sell a
stock if the company's long-term fundamentals change unexpectedly for the worse.
A stock will also be sold if the company performs below the investment manager's
expectations for three to four years.
Although the fund does not presently intend to do so, it may invest up to 30% of
its total assets in foreign securities.
12 Kemper-Dreman Financial Services Fund
<PAGE>
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional risk
Foreign Investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
Kemper-Dreman Financial Services Fund 13
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Investment objective and strategies
Kemper-Dreman High Return Equity Fund seeks to achieve a high rate of total
return. Except as otherwise indicated, the fund's investment objective and
policies may be changed without a vote of shareholders. This fund primarily
invests in a diversified portfolio of the stocks of large U.S. companies that
the investment manager believes to be undervalued. Such companies currently have
a median market capitalization of $9 billion.
The investment manager looks for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o dividend yields above the market average;
o sound finances; and
o perceived intrinsic value through in-depth security analysis.
The fund is managed with a view to achieving a high rate of total return on
investors' capital primarily through appreciation of its common stock holdings,
options transactions and by acquiring and selling stock index futures and
options thereon and, to a lesser extent, through dividend and interest income,
all of which are elements of total return.
The fund may invest 25% or more of its total assets in one or more market
sectors, such as the financial services sector.
The fund may be appropriate for investors who seek a core holding to establish
the foundation of a value-oriented portfolio or a value fund to diversify an
existing growth-equity portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Sector investing. To the extent that the fund focuses its investments in a
market sector, financial, economic, business and other developments affecting
issues in that sector may have a greater effect on the fund than if it had not
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
14 Kemper-Dreman High Return Equity Fund
<PAGE>
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1989.................. 18.45%
1990.................. -8.63%
1991.................. 47.57%
1992.................. 19.80%
1993.................. 9.22%
1994.................. -.99%
1995.................. 46.86%
1996.................. 28.79%
1997.................. 31.92%
1998.................. 11.96%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 33.22% (the first quarter of 1991), and the fund's lowest
return for a calendar quarter was -22.84% (the third quarter of 1990).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C S&P 500
----------------- ------- ------- ------- -------
One Year 5.52% 8.01% 11.05% 28.60%
Five Years 21.12% -- -- 24.05%
Ten Years 18.48% -- -- 19.19%
Since Class Inception** 18.35% 24.61% 25.04% *
- ----------
* Index returns for the life of each class: 18.82% (3/31/88) for Class A and
28.88% (8/31/95) for Class B and C shares.
** Inception date for Class A, B and C shares is 3/18/88, 9/11/95 and
9/11/95, respectively.
The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is an
unmanaged capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange and the American Stock Exchange, and
traded on the Nasdaq Stock Market, Inc. Index returns assume reinvestment of of
dividends and, unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper-Dreman High Return Equity Fund 15
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed
on Purchases (as % of offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.68% 0.68% 0.68%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.51% 0.63% 0.58%
Total Annual Fund Operating Expenses 1.19% 2.06% 2.01%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $689 $609 $304
3 Years $931 $946 $631
5 Years $1,192 $1,308 $1,083
10 Years $1,935 $1,961 $2,338
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $689 $209 $204
3 Years $931 $646 $631
5 Years $1,192 $1,108 $1,083
10 Years $1,935 $1,961 $2,338
16 Kemper-Dreman High Return Equity Fund
<PAGE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities
that the investment manager believes are undervalued. Securities may be
undervalued as a result of overreaction by investors to unfavorable news about a
company, industry or the stock markets in general or as a result of a market
decline, poor economic conditions, or actual or anticipated unfavorable
developments affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). After screening for
low price-to-earnings ratios, the manager analyzes and compares other value
measurements against the market. These include price-to-book value,
price-to-cash flow and dividend yield.
The fund's investment approach emphasizes companies that possess strong
financial positions. Considerable time is spent seeking potential investments
that have strong potential for long-term growth.
The investment manager analyzes earnings and dividend growth of companies and
seeks those investments that have had 5- and 10-year track records of
consistent, above-market earnings and dividend growth. The fund's style is to
own strong companies, not to speculate on weak stocks or potential bankruptcies.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis. This is followed by thorough security analysis of all
potential stock selections.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The investment manager also monitors a universe of 100
to 125 potentially promising securities for future investment.
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager may
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
Although the fund does not presently intend to do so, it may invest up to 20% of
its total assets in foreign securities.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
Kemper-Dreman High Return Equity Fund 17
<PAGE>
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional risk
Foreign investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
18 Kemper-Dreman High Return Equity Fund
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Investment objective and strategies
Kemper Small Cap Relative Value Fund seeks long-term capital appreciation.
Except as otherwise indicated, the fund's investment objective and policies may
be changed without a vote of shareholders.
The fund primarily invests in a diversified portfolio of the stocks of small
U.S. companies similar in size to those comprising the Russell 2000 Index that
the investment manager believes to be undervalued relative to other stocks in
the same sector by following a relative value investment strategy. The fund may
invest 25% or more of its total assets in one or more market sectors, such as
the financial services sector.
The fund may be appropriate for investors who seek to add the higher return
potential of small company stocks to their portfolio or those investors who seek
to diversify their existing portfolio with small company stocks.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Small company risk. While small company stocks have historically outperformed
large company stocks, they also have been subject to greater investment risk.
The risks generally associated with small companies include more limited product
lines, markets and financial resources, lack of management depth or experience,
dependency on key personnel and vulnerability to adverse market and economic
developments. Accordingly, the prices of small company stocks tend to be more
volatile than prices of large company stocks. Further, the prices of small
company stocks are often adversely affected by limited trading volumes and the
lack of publicly available information.
Also, because small companies normally have fewer shares outstanding and these
shares generally trade less frequently than large companies, it may be more
difficult for the fund to buy and sell significant amounts of small company
shares without having an unfavorable impact on the shares' stock market price.
Sector investing. To the extent that the fund focuses its investments in a
market sector, financial, economic, business and other developments affecting
issuers in that sector may have a greater effect on the fund than if it had not
focused its assets in that sector.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
Kemper Small Cap Relative Value Fund 19
<PAGE>
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.75% 0.75% 0.75%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses(1) 11.61% 15.41% 10.93%
Total Annual Fund Operating Expenses 12.36% 16.91% 12.43%
- ----------
(1) Other expenses have been estimated for the current fiscal year.
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.52%, Class B to 2.40% and Class C to 2.37%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement may be discontinued
at any time. However, the investment manager has agreed to continue to waive
0.25% of its management fee until September 30, 1999. As a result, for the
fiscal year ended September 30, 1998, "Total Annual Fund Operating Expenses"
were reduced by 10.84%, 14.51% and 10.06% for Class A, Class B and Class C and
actual total annual fund operating expenses were 1.52% for Class A, 2.40% for
Class B and 2.37% for Class C. The information contained in the above table and
the example below reflects the expenses of the
20 Kemper Small Cap Relative Value Fund
<PAGE>
fund without taking into account any applicable fee waivers and/or
reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $1,697 $1,990 $1,297
3 Years $3,700 $4,525 $3,330
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $1,697 $1,590 $1,197
3 Years $3,700 $4,225 $3,330
Principal strategies and investments
The fund seeks long-term capital appreciation through a diversified portfolio of
small company stocks that the investment manager believes are undervalued.
Securities may be undervalued as a result of overreaction by investors to
unfavorable news about a company, industry or the stock markets in general or as
a result of a market decline, poor economic conditions, or actual or anticipated
unfavorable developments affecting the company.
The investment manager follows a relative value investment strategy, seeking
undervalued small capitalization stocks from each major sector of the small
capitalization market as part of a well diversified, risk-managed portfolio. In
a relative value investment strategy, stocks are selected based on whether they
are undervalued relative to other stocks in the same sector. The relative value
strategy allows the fund to invest in all sectors, including technology,
healthcare and other areas of the market that typically are underweighted in an
absolute value portfolio.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of companies that are similar in size to those
comprising the Russell 2000 Index. Typically, most companies selected for
inclusion in the fund have market capitalizations ranging from approximately
$100 million to $1 billion. The fund sells securities of companies that have
grown in market
Kemper Small Cap Relative Value Fund 21
<PAGE>
capitalization above the maximum of the Russell 2000 Index, as necessary to keep
the fund focused on smaller companies.
The investment manager employs quantitative techniques in evaluating potential
investments and the impact each would have on the fund's portfolio. The
evaluation starts systematically by analyzing a large number of small company
stocks to uncover those with attractive valuations. Typically, the stocks
selected are:
o undervalued in the market based on measures such as earnings, sales, cash
flow and book value;
o experiencing favorable trends in sales, earnings, growth and prices; and
o considered to have acceptable financial risk and earnings predictability.
This systematic screening process is intended to enable the investment manager
to quickly respond to changes in the marketplace and reassess relative
valuations for the fund's holdings in order to make buy and sell decisions.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
22 Kemper Small Cap Relative Value Fund
<PAGE>
KEMPER SMALL CAP VALUE FUND
Investment objective and strategies
Kemper Small Cap Value Fund seeks long-term capital appreciation. Except as
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
This fund primarily invests in a diversified portfolio of the stocks of small
U.S. companies similar in size to those comprising the Russell 2000 Index that
the investment manager believes to be undervalued. The investment manager looks
for investments with the following attributes:
o low price-to-earnings ratios;
o low price-to-book ratios;
o low price-to-cash flow ratios;
o sound finances; and
o perceived intrinsic value through in-depth security analysis.
Although the fund does not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors, such as the financial services
sector.
The fund may be appropriate for investors who seek a small capitalization
investment to diversify a large capitalization portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Small company risk. While small company stocks have historically outperformed
large company stocks, they also have been subject to greater investment risk.
The risks generally associated with small companies include more limited product
lines, markets and financial resources, lack of management depth or experience,
dependency on key personnel and vulnerability to adverse market and economic
developments. Accordingly, the prices of small company stocks tend to be more
volatile than prices of large company stocks. Further, the prices of small
company stocks are often adversely affected by limited trading volumes and the
lack of publicly available information.
Also, because small companies normally have fewer shares outstanding and these
shares generally trade less frequently than large companies, it may be more
difficult for the fund to buy and sell significant amounts of small company
shares without having an unfavorable impact on the shares' stock market price.
Kemper Small Cap Value Fund 23
<PAGE>
Sector investing. To the extent that the fund focuses its investments in a
market sector, financial, economic, business and other developments affecting
issuers in that sector may have a greater effect on the fund than if it had not
focused its assets in that sector.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1993.................. 2.54%
1994.................. .15%
1995.................. 43.29%
1996.................. 29.60%
1997.................. 20.02%
1998.................. -12.82%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 16.94% (the fourth quarter of 1992), and the fund's lowest
return for a calendar quarter was -24.07% (the third quarter of 1998).
Average Annual Total Returns
For periods ended Russell
December 31, 1998 Class A Class B Class C 2000 Index
----------------- ------- ------- ------- ----------
One Year -17.81% -16.22% -13.60% -2.55%
Five Years 12.89% -- -- 11.87%
Ten Years -- -- -- --
Since Class Inception** 13.08% 7.40% 8.00% *
- ----------
* Index returns for the life of each class: 13.83% (5/31/92) for Class A and
11.67% (8/31/95) for Class B and C Shares.
** Inception date for Class A, B and C shares is 5/22/92, 9/11/95 and
9/11/95, respectively.
The Russell 2000 Index is a capitalization-weighted price only index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization) in the
Russell 3000 Index.
24 Kemper Small Cap Value Fund
<PAGE>
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.72% 0.72% 0.72%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.70% 0.87% 0.81%
Total Annual Fund Operating Expenses 1.42% 2.34% 2.28%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Kemper Small Cap Value Fund 25
<PAGE>
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $711 $637 $331
3 Years $999 $1,030 $712
5 Years $1,307 $1,450 $1,220
10 Years $2,179 $2,235 $2,615
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $711 $237 $231
3 Years $999 $730 $712
5 Years $1,307 $1,250 $1,220
10 Years $2,179 $2,235 $2,615
Principal strategies and investments
The fund seeks long-term capital appreciation by investing principally in a
diversified portfolio of undervalued small company equity securities. The
investment manager invests in companies whose prices appear to be temporarily
depressed due to short-term fundamental factors. Securities may be undervalued
as a result of overreaction by investors to unfavorable news about a company,
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities of companies that are similar in size to those comprising
the Russell 2000 Index. The fund sells securities of companies that have grown
in market capitalization above the maximum of the Russell 2000 Index, as
necessary to keep focused on smaller companies.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of the process seeks investments with low
price-to-earnings ratios in relationship to the market as measured by the
Russell 2000 Index. After the manager screens for low price-to-earnings ratios,
he analyzes and compares other value measurements against the market. These
include price-to-book value and price-to-cash flow.
The fund's investment approach emphasizes companies that posses strong financial
positions. Considerable time is spent seeking potential investments that have
strong potential for long-term growth.
After the portfolio stock universe is refined, the investment manager applies
fundamental analysis.
The investment manager follows all stocks in the fund's portfolio on an
intensive ongoing basis. The manager also monitors a universe of 25 to 175
potentially promising candidates for future investment
The investment manager sells stocks or determines a strategy for selling stocks
as their price-to-earnings ratios rise above that of the market. The manager
then
26 Kemper Small Cap Value Fund
<PAGE>
replaces them with other low price-to-earnings stocks. The manager may also
choose to sell a stock if the company's long-term fundamentals change
unexpectedly for the worse. A stock will also be sold if the company performs
below the investment manager's expectations for three to four years.
For temporary defensive purposes, the fund may invest up to 50% of its assets in
high-grade debt securities, cash and cash equivalents. Because this defensive
policy differs from the fund's investment objective, the fund may not achieve
its goals during a defensive period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Kemper Small Cap Value Fund 27
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Investment objective and strategies
Kemper U.S. Growth and Income Fund seeks to provide long-term growth of capital,
current income and growth of income. Except as otherwise indicated, the fund's
investment objectives and policies may be changed without a vote of
shareholders.
The fund primarily invests in a diversified portfolio of common stocks of large
U.S. companies that (i) offer the prospect for growth of earnings while paying
current dividends and (ii) the investment manager believes are undervalued.
Companies in which the fund invests generally are similar in size with the
median capitalization of companies represented in the Standard & Poor's 500
Composite Stock Price Index (S&P 500). The investment manager believes that,
over time, continued growth of earnings tends to lead to higher dividends and
enhancement of capital value.
The fund may be appropriate for investors who seek a conservative value holding
to add to their portfolio.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
28 Kemper U.S. Growth And Income Fund
<PAGE>
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.60% 0.60% 0.60%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 1.99% 2.14% 1.90%
Total Annual Fund Operating Expenses 2.59% 3.49% 3.25%
Subject to the qualification described below, Scudder Kemper Investments, Inc.
has agreed to temporarily reimburse certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.36%, Class B to 2.01% and Class C to 1.99%; provided, however,
transfer agency fees and related out-of-pocket expenses will not be subject to
this reimbursement. Therefore, if transfer agency fees and related out-of-pocket
expenses were to exceed the limits upon Total Operating Expenses for a
particular class during the period of the reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual amount
incurred and Total Annual Fund Operating Expenses for the class would exceed the
limits described above during the period. This arrangement may be discontinued
at any time. As a result, for the fiscal year ended September 30, 1998, "Total
Annual Fund Operating Expenses" were reduced by 1.23%, 1.48% and 1.26% for Class
A, Class B and Class C and actual total annual fund operating expenses were
1.36% for Class A, 2.01% for Class B and 1.99% for Class C. The information
contained in the above table and the example below reflects the expenses of the
fund without taking into account any applicable fee waivers and/or
reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $822 $752 $428
3 Years $1,334 $1,371 $1,001
5 Years $1,871 $2,012 $1,698
10 Years $3,331 $3,380 $3,549
Kemper U.S. Growth And Income Fund 29
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $822 $352 $328
3 Years $1,334 $1,071 $1,001
5 Years $1,871 $1,812 $1,698
10 Years $3,331 $3,380 $3,549
Principal strategies and investments
The fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by U.S. common stocks and other
domestic equity securities. It maintains a diversified portfolio of equity
securities of companies with higher-than-average dividend payouts. These
companies, many of which are mainstays of the U.S. economy, may offer prospects
for future growth of earnings and dividends, and therefore may offer investors
attractive long-term investment opportunities. The fund will invest at least 80%
of its assets in the equity securities of U.S. issuers.
In the investment manager's opinion, this subset of higher relative yielding
stocks identified by applying these criteria offers the potential for returns
over time that are greater than or equal to the S&P 500, at less risk than this
market index. The investment manager believes these favorable risk and return
characteristics exist because the higher dividends offered by these stocks may
act as a "cushion" when markets are volatile and because stocks with higher
relative yields tend to sell at more attractive valuations (e.g., lower
price-to-earning ratios and lower price-to- book ratios).
Once this subset of higher relative yielding stocks is identified, the
investment manager conducts a fundamental analysis of each company's financial
strength, profitability, projected earnings, sustainability of dividends,
competitive outlook, and ability of management. The fund's portfolio may include
stocks that are out of favor in the market, but which, in the opinion of the
investment manager, offer compelling valuations and potential for long-term
appreciation in price and dividends.
In order to diversify the fund's portfolio among different industry sectors, the
investment manager evaluates how each sector reacts to broad economic factors
such as interest rates, inflation, Gross Domestic Product, and consumer
spending.
The investment manager has disciplined criteria for selling stocks as well. When
the investment manager determines that the relative yield of a stock has
declined excessively below the yield of the S&P 500, or that the relative yield
is at the lower end of the stock's historic range, the stock generally is sold
from the fund's portfolio. Similarly, if the investment manager's fundamental
analysis determines that the payment of the stock's dividend is at risk, or that
market expectations for the stock are unreasonably high, the stock is generally
targeted for sale.
In summary, the investment manager applies disciplined buy and sell criteria,
fundamental company and industry analysis, and economic forecasts in
30 Kemper U.S. Growth And Income Fund
<PAGE>
managing the fund to pursue long-term price appreciation and income with a
tendency for lower overall volatility than the market, as measured by the S&P
500.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. Because this defensive policy differs from the fund's
investment objective, the fund may not achieve its goals during a defensive
period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Kemper U.S. Growth And Income Fund 31
<PAGE>
KEMPER VALUE FUND
Investment objective and strategies
Value Fund seeks long-term growth of capital through investment in undervalued
equity securities. Except as otherwise indicated, the fund's investment
objective and policies may be changed without a vote of shareholders.
The fund invests in the stock of companies that the investment manager believes
are undervalued in the marketplace in relation to current and estimated future
earnings and dividends. These companies generally sell at price-to-earnings
ratios below the market average, as defined by the Standard & Poor's 500
Composite Stock Price Index (S&P 500).
The fund may be appropriate for investors who seek a core holding to establish
the foundation of a value-oriented portfolio or a value fund to diversify an
existing growth-equity portfolio.
This prospectus contains information regarding Class A, B and C shares of the
fund.
Principal risks
The fund's principal risks are associated with investing in the stock market,
equity and value investing, the investment manager's skill in managing the
fund's portfolio and inflation risk. You will find a discussion of these risks
under "Value Stock Investing" at the front of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
fund currently offers four classes of shares. The original class of shares is
designated Class S. This prospectus sets forth information about Class A, B and
C. Because Class A, B and C commenced operating during the course of 1998, the
performance information set forth below is for Class S shares, and does not
reflect sales charges, which reduce return. All share classes invest in the same
underlying portfolio of securities and have the same management team. Because of
different fees and expenses, performance of share classes will differ.
32 Kemper Value Fund
<PAGE>
Total returns for years ended December 31
[The following table was depicted as a bar chart in the printed material.]
1993.................. 11.60%
1994.................. 1.65%
1995.................. 30.17%
1996.................. 22.99%
1997.................. 35.35%
1998.................. 11.90%
For the period included in the bar chart, the Class S Shares highest return for
a calendar quarter was 17.07% (the fourth quarter of 1998), and the Class S
Shares lowest return for a calendar quarter was -15.34% (the third quarter of
1998).
Average annual total returns
For periods ended Russell 1000
December 31, 1998 Fund S&P 500 Value Index
----------------- ---- ------- -----------
One Year 11.90% 28.72% 15.65%
Five Years 19.77% 24.08% 20.84%
Since Inception (12/31/92) 18.36% 21.62% 20.39%
The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and the American Stock Exchange, and traded on the
Nasdaq Stock Market, Inc. Index returns assume reinvestment of dividends and,
unlike fund returns, do not reflect any fees or expenses.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper Value Fund 33
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed
on Purchases (as % of offering price) 5.75% None None
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
Redemption Fee (as % of amount
redeemed, if applicable) None None None
Exchange Fee None None None
- ----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund
assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.70% 0.70% 0.70%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.64% 0.67% 0.66%
Total Annual Fund Operating Expenses 1.34% 2.12% 2.11%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown. The example does not reflect sales
charges (loads) on reinvested dividends and other distributions. If these sales
charges were included, your costs would be higher.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $136 $627 $317
3 Years $425 $991 $661
5 Years $734 $1,139 $1,134
10 Years $1,613 $2,452 $2,441
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $136 $215 $214
3 Years $425 $664 $661
5 Years $734 $1,370 $1,134
10 Years $1,613 $2,452 $2,441
34 Kemper Value Fund
<PAGE>
Principal strategies and investments
The fund invests at least 80% of its assets in equity securities, primarily
common stocks of medium- to large-sized domestic companies with annual revenues
or market capitalization of at least $1 billion. The investment manager uses
in-depth fundamental research and a proprietary computerized quantitative model
to identify companies that are currently undervalued in relation to current and
estimated future earnings and dividends. The investment process also involves an
assessment of business risk, including analysis of:
o the strength of a company's balance sheet;
o the accounting practices a company follows;
o the volatility of a company's earnings over time; and
o the vulnerability of earnings to changes in external factors, such as the
general economy, the competitive environment, governmental action and
technological change.
While a broad range of investments is considered, only those that, in the
investment manager's opinion, are selling at comparatively large discounts to
intrinsic value are purchased for the fund. It is anticipated that the prices of
the fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.
The fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. In addition to
identifying undervalued securities, the quantitative model also provides the
discipline required to identify and sell appreciated securities as their prices
rise to reflect their earnings potential. The model relies on the investment
manager's independent equity research efforts for estimates of future earnings
and dividend growth and proprietary quality ratings, an important measure of
risk.
While the fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to the
fund's domestic investments.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. Because this defensive policy differs from the fund's
investment objective, the fund may not achieve its goals during a defensive
period.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques that may impact fund performance,
including options, futures and other strategic transactions.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Additional principal risks
Foreign Investing. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
Kemper Value Fund 35
<PAGE>
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes the fund to an increased risk of political and
economic instability.
Other risks of investing in foreign securities include: limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.
36 Kemper Value Fund
<PAGE>
INVESTMENT MANAGER
The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide. It manages more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Each fund pays Scudder Kemper Investments, Inc. a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are shown below:
As a % of average daily net assets
----------------------------------
Kemper Contrarian Fund 0.75%
Kemper-Dreman High Return Equity Fund 0.68%
Kemper Small Cap Value Fund 0.72%
Kemper Value Fund 0.70%
Kemper Small Cap Relative Value Fund and Kemper-Dreman Financial Services Fund
each pay Scudder Kemper Investments, Inc. a (graduated) monthly investment
management fee at the following annual rate:
Applicable Assets($) Annual Fee Rate
-------------------- ---------------
0-250,000,000 0.75%
250,000,000-1,000,000,000 0.72%
1,000,000,000-2,500,000,000 0.70%
2,500,000,000-5,000,000,000 0.68%
5,000,000,000-7,500,000,000 0.65%
7,500,000,000-10,000,000,000 0.64%
10,000,000,000-12,500,000,000 0.63%
More than 12,500,000,000 0.62%
Kemper U.S. Growth and Income Fund pays Scudder Kemper Investments, Inc. a
(graduated) monthly investment management fee at the following annual rate:
Applicable Assets($) Annual Fee Rate
-------------------- ---------------
0-250,000,000 0.60%
250,000,000-1,000,000,000 0.57%
1,000,000,000-2,500,000,000 0.55%
More than 2,500,000,000 0.63%
Investment Manager 37
<PAGE>
For Kemper Small Cap Relative Value Fund, the investment manager has agreed to
waive 0.25% of its management fee until September 30, 1999.
Pursuant to a sub-advisory agreement with Scudder Kemper Investments, Inc.,
Dreman Value Management L.L.C., 10 Exchange Place, Jersey City, New Jersey, is
the sub-adviser for the Kemper-Dreman High Return Equity Fund and Kemper-Dreman
Financial Services Fund and receives a fee for its services from Scudder Kemper
Investments. Founded in 1977, Dreman Value Management, L.L.C. manages over $7
billion in assets.
Dreman Value Management, L.L.C. manages the investment and reinvestment of the
Kemper-Dreman High Return Equity Fund's and Kemper-Dreman Financial Services
Fund's assets, in accordance with their investment objectives, policies and
limitations, subject to the supervision of Scudder Kemper Investments and the
Board of Directors. Dreman Value Management, L.L.C. receives a fee for its
services from Scudder Kemper Investments, Inc.
Scudder Kemper Investments, Inc. pays Dreman Value Management, L.L.C. for its
services a sub-advisory fee for each of Kemper-Dreman High Return Equity Fund
and Kemper-Dreman Financial Services Fund, payable monthly, at the annual rate
of 0.24% of the first $250 million of the fund's average daily net assets; 0.23%
of the average daily net assets between $250 million and $1 billion; 0.224% of
average daily net assets between $1 billion and $2.5 billion; 0.218% of average
daily net assets between $2.5 billion and $5 billion; 0.208% of average daily
net assets between $5 billion and $7.5 billion; 0.205% of average daily net
assets between $7.5 billion and $10 billion; 0.202% of average daily net assets
between $10 billion and $12.5 billion and 0.198% of the Fund's average daily net
assets over $12 billion.
In addition, Scudder Kemper Investments, Inc. has guaranteed to pay a minimum of
$8 million to Dreman Value Management, L.L.C. during each of the calendar years
of 2000, 2001 and 2002 that Dreman Value Management, L.L.C. serves as
sub-adviser.
38 Investment Manager
<PAGE>
PORTFOLIO MANAGEMENT
The following investment professionals are associated with the funds as
indicated:
Kemper Contrarian Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Thomas F. Sassi, 1997 Joined Scudder Kemper in 1996. He
Lead Portfolio Manager began his investment career in
1971. Prior to joining Scudder
Kemper he was a Vice President and
Portfolio Manager for an
unaffiliated life insurance and
investment management firm.
Frederick L. Gaskin, 1997 Joined Scudder Kemper in 1996. He
Portfolio Manager began his investment career in
1986. Prior to joining Scudder
Kemper he was a Vice President and
Portfolio Manager for a bank.
- --------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
Kemper-Dreman High Return Equity Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
David N. Dreman, Lead 1988 Chairman of Dreman Value
Portfolio Manager Management, L.L.C. since 1977. He
is a pioneer of the philosophy of
contrarian investing (buying what
is out of favor) and a leading
proponent of the low P/E investment
style. He is a columnist for Forbes
and the author of several books on
the value style of investing. He
began his investment career in
1957.
- --------------------------------------------------------------------------------
Kemper Small Cap Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Thomas H. Forester, 1997 Joined Scudder Kemper in 1997. He
Co-Lead Portfolio began his investment career in
Manager 1988. Prior to joining Scudder
Kemper he was a Senior Vice
President and Senior Portfolio
Manager at an unaffiliated
investment management company.
Steven T. Stokes, 1997 Joined Scudder Kemper in 1996. He
Co-Lead Portfolio began his investment career in
Manager 1986. Prior to joining Scudder
Kemper he was an equity analyst and
part of the portfolio management
team at an unaffiliated investment
company.
- --------------------------------------------------------------------------------
Investment Manager 39
<PAGE>
Kemper Small Cap Relative Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
James M. Eysenbach, 1998 Joined Scudder Kemper in 1986
Lead Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1984.
Philip S. Fortuna, 1998 Joined Scudder Kemper in 1991
Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1984.
Calvin S. Young, 1998 Joined Scudder Kemper in 1990
Portfolio Manager serving as a portfolio manager on
various affiliated mutual funds. He
began his investment career in
1988.
- --------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Lori J. Ensinger, Lead 1998 Joined Scudder Kemper in 1993. She
Portfolio Manager began her investment career in
1983. Prior to joining Scudder
Kemper she was a Senior Portfolio
Manager who managed portfolios for
both institutions and individuals
for an unaffiliated investment
management firm.
Robert T. Hoffman, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in
1985. Prior to joining Scudder
Kemper he was Assistant State
Treasurer for the state of New
Jersey.
Benjamin W. Thorndike, 1998 Joined Scudder Kemper in 1983. He
Portfolio Manager began his investment career in
1980. Prior to joining Scudder
Kemper he was an investment officer
for a bank.
- --------------------------------------------------------------------------------
40 Investment Manager
<PAGE>
Kemper Value Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Donald E. Hall, 1992 Joined Scudder Kemper in 1982. He
Lead Portfolio Manager began his investment career in
1982. Prior to joining Scudder
Kemper he received an M.B.A. from
Harvard Business School after
working as a sales engineer for an
international aluminum products
manufacturer.
William J. Wallace, 1992 Joined Scudder Kemper in 1987. He
Portfolio Manager began his investment career in
1981. Prior to joining Scudder
Kemper he performed product
management and client relations for
a variety of trustee banks.
- --------------------------------------------------------------------------------
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund rely,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager has commenced a review of the Year 2000 Issue as it may affect the funds
and is taking steps it believes are reasonably designed to address the Year 2000
Issue, although there can be no assurances that these steps will be sufficient.
In addition, there can be no assurances that the Year 2000 Issue will not have
an adverse effect on the issuers whose securities are held by a fund or on
global markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of each fund. The Euro
was introduced on January 1, 1999 by eleven European countries that are members
of the European Economic and Monetary Union (EMU). The introduction of the Euro
will require the redenomination of European debt and equity securities over a
period of time, which may result in various accounting differences and/or tax
treatments. Additional questions are raised by the fact that certain other
European community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
The investment manager is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a fund's holdings is negative, it
could hurt the fund's performance.
Investment Manager 41
<PAGE>
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
Each fund provides investors with the option of purchasing shares in the
following ways:
- --------------------------------------------------------------------------------
Class A Shares Offered at net asset value plus a maximum sales charge
of 5.75% of the offering price. Reduced sales charges
apply to purchases of $50,000 or more. Class A shares
purchased at net asset value under the Large Order NAV
Purchase Privilege may be subject to a 1% contingent
deferred sales charge if re deemed within one year of
purchase and a .50% contingent deferred sales change if
redeemed during the second year of purchase.
Class B Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions made
within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a 1% contingent deferred sales
charge on redemptions made within one year of purchase.
Class C shares do not convert into another class.
- --------------------------------------------------------------------------------
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about these sales
arrangements, consult your financial representative or Kemper Service Company,
the Shareholder Service Agent. Be aware that financial services firms may
receive different compensation depending upon which class of shares they sell.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and other services provided to
shareholders of those classes. Because 12b-1 fees are paid out of fund assets on
an ongoing basis, they will, over time, increase the cost of investment and may
cost more than other types of sales charges. Long-term shareholders may pay more
than the economic equivalent of the maximum initial sales charges
42 About Your Investment
<PAGE>
permitted by the National Association of Securities Dealers, although Kemper
Distributors, Inc. believes that it is unlikely, in the case of Class B shares,
because of the automatic conversion feature of those shares
SPECIAL FEATURES
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares -- Large Order NAV Purchase Privilege. Class A shares of a fund
may be purchased at net asset value by any purchaser provided that the amount
invested in such fund or other Kemper Mutual Funds totals at least $1,000,000
including purchases of Class A shares pursuant to the "Combiner Purchases,"
"Letter of Intent" and "Cumulative Discount" features described above (the
"Large Order NAV Purchase Privilege").
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services.
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
About Your Investment 43
<PAGE>
BUYING SHARES
You may purchase shares of a fund by contacting the securities dealer or other
financial services firm from whom your received this prospectus.
CLASS A SHARES
Public Offering Price Including Sales Charge
Sales Charge
------------
As a % of As a % of Net
Amount of Purchase Offering Price Amount Invested*
------------------ -------------- ----------------
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71%
$100,000 but less than $250,000 3.50 3.63%
$250,000 but less than $500,000 2.60 2.67%
$500,000 but less than $1 million 2.00 2.04%
$1 million and over 0.00** 0.00**
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
NAV Purchases
Class A shares of a fund may be purchased at net asset value by:
o shareholders in connection with the investment or reinvestment of income
and capital gain dividends
o a participant-directed qualified retirement plan or a participant-directed
non-qualified deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a K-12 school
district, provided in each case that such plan has not less than 200
eligible employees
o any purchaser with Kemper Funds investment totals of at least $1,000,000
o unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs
o officers, trustees, directors, employees (including retirees) and sales
representatives of a fund, its investment manager, its principal
underwriter or certain affiliated companies, for themselves or members of
their families or any trust, pension, profit-sharing or other benefit plan
for only such persons
o persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm
o registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors or any trust, pension,
profit-sharing or other benefit plan for only such persons
44 About Your Investment
<PAGE>
o officers, directors, and employees of service agents of the funds
o members of the plaintiff class in the proceeding known as Howard and
Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et. al.,
Case No. 93 C 5231 (N.D.IL)
o selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the funds pursuant to an agreement with Kemper
Distributors or one of its affiliates
o certain professionals who assist in the promotion of Kemper Funds pursuant
to personal services contracts with Kemper Distributors, for themselves or
members of their families
o in connection with the acquisition of the assets of or merger or
consolidation with another investment company
o shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper
Fund acquired by exchange of KVS shares) since that date, for themselves
or members of their families or any trust, pension, profit-sharing or
other benefit plan for only such persons
o persons who purchase shares of the fund through Kemper Distributors as
part of an automated billing and wage deduction program administered by
RewardsPlus of America
o through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms, acting solely as
agent for their clients, that adhere to certain standards established by
Kemper Distributors, including a requirement that such shares be purchased
for the benefit of their clients participating in an investment advisory
program or agency commission program under which such clients pay a fee to
the investment advisor or other firm for portfolio management or agency
brokerage services.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: 1% if
they are redeemed within one year of purchase and 0.50% if redeemed during the
second year following purchase. The charge will not be imposed upon redemption
of reinvested dividends or share appreciation. The charge is applied to the
value of the shares being redeemed, excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o redemption of shares of a shareholder (including a registered joint owner)
who after purchase of the shares being redeemed becomes totally disabled
About Your Investment 45
<PAGE>
(as evidenced by a determination by the federal Social Security
Administration)
o redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by a
K-12 school district
o redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates
o redemptions of shares whose dealer of record at the time of the investment
notifies Kemper Distributors that the dealer waives the commission
applicable to such Large Order NAV Purchase.
Rule 12b-1 Fee
None
Exchange Privilege
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any Kemper Fund or a Money Market Fund without
paying any contingent deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed.
CLASS B SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class B
shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
- -------------------------------------------------------------------------------
Year of Redemption
After Purchase: First Second Third Fourth Fifth Sixth
- -------------------------------------------------------------------------------
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
- -------------------------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions to satisfy required minimum distributions after age 70 1/2
from an IRA account (with the maximum amount subject to this waiver being
based only upon the shareholder's Kemper IRA accounts)
46 About Your Investment
<PAGE>
o for redemptions made pursuant to any IRA systematic withdrawal based on
the shareholder's life expectancy including, but not limited to,
substantially equal periodic payments described in Code Section
72(t)(2)(A)(iv) prior to age 59 1/2
o for redemptions made pursuant to a systematic withdrawal plan
o in the event of the total disability (as evidenced by a determination by
the federal Social Security Administration) of the shareholder (including
a registered joint owner) occurring after the purchase of the shares being
redeemed
o in the event of the death of the shareholder (including a registered joint
owner)
The contingent deferred sales charge will also be waived in connection with the
following redemptions of shares held by employer sponsored employee benefit
plans maintained on the subaccount record keeping system made available by the
Shareholder Service Agent:
o redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent
deferred sales charge and the conversion privilege)
o redemptions in connection withy retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in a fund)
o redemptions in connection with distributions qualifying under the hardship
provisions of the Code
o redemptions representing returns of excess contributions to such plans.
Rule 12b-1 Fee
0.75%
Conversion Feature
Class B shares of a fund will automatically convert to Class A shares of the
same fund six years after issuance on the basis of the relative net asset value
per share. Shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a pro rata basis.
Exchange Privilege
Class B shares of a fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without a contingent
deferred sales charge.
About Your Investment 47
<PAGE>
CLASS C SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
o A contingent deferred sales charge of 1% may be imposed upon redemption of
Class C shares redeemed within one year of purchase. The charge will not
be imposed upon redemption of reinvested dividends or share appreciation.
The contingent deferred sales charge will be waived in the event of:
o redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457
o redemptions by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o redemption of shares of a shareholder (including a registered joint owner)
who after purchase of the shares being redeemed becomes totally disabled
(as evidenced by a determination by the federal Social Security
Administration)
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance of the first year administrative service and
distribution fees applicable to such shares and agrees to receive such
fees quarterly
o redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer
of record has waived the advance of the first year administrative services
and distribution fees applicable to such shares and has agreed to receive
such fees quarterly.
Rule 12b-1 Fee
0.75%
Conversion Feature
None
Exchange Privilege
Class C shares of a fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge.
48 About Your Investment
<PAGE>
SELLING AND EXCHANGING SHARES
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Fund.
The rate of the contingent deferred charge is determined by the length of the
period of ownership. Investments are tracked on a monthly basis. The period of
ownership for this purpose begins the first day of the month in which the order
for the investment is received, For example, an investment made in December,
1996 will be eligible for the second year's charge if redeemed on or after
December 1, 1997. In the event no specific order is requested when redeeming
shares subject to a contingent deferred sales charge, the redemption will be
made first from shares representing reinvested dividends and then from the
earliest purchase of shares. KDI receives any contingent deferred sales charge
directly.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, the Shareholder Service Agent along with
a duly endorsed stock power and accompanied by a written request for redemption.
Redemption requests and a stock power must be endorsed by the account holder
with signatures guaranteed. The redemption request and stock power must be
signed exactly as the account is registered, including any special capacity of
the registered owner. Additional documentation may be requested, and a signature
guarantee is normally required, from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under the Uniform Transfers to
Minors Act), executors, administrators, trustees or guardians.
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
About Your Investment 49
<PAGE>
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
Kemper Contrarian Fund, Kemper U.S. Growth and Income Fund and Kemper-Dreman
High Return Equity Fund normally distribute quarterly dividends of net
investment income. Kemper Small Cap Value Fund, Kemper Small Cap Relative Value
Fund and Kemper Value Fund normally distribute annual dividends of net
investment income. The Kemper-Dreman Financial Services Fund normally
distributes dividends of net investment income semi-annually. Each fund
distributes any net realized short-term and long-term capital gains at least
annually.
Income and capital gain dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to Kemper Service Company, to the Shareholder Service Agent, a
shareholder may select one of the following options:
1. To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
2. To receive income and capital gain dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, upon written request to
Kemper Service Company, the Shareholder Service Agent, you may choose to have
dividends of a fund invested in shares of the same class of another Kemper Fund
at the net asset value of that class and fund. To use this privilege, you must
maintain a minimum account value of $1,000 in the fund distributing the
dividends. The funds will reinvest dividend checks (and future dividends) in
shares of that same fund and class if checks are returned as undeliverable.
Dividends and other distributions in the aggregate amount of $10 or less are
automatically reinvested in shares of the same fund unless you request that such
policy not be applied to your account.
Distributions are generally taxable, whether received in cash or reinvested.
Taxes
Dividends from net investment income and net short-term capital gains, if any,
are taxable to you as ordinary income. Long-term capital gains distributions, if
any, are taxable to you as long-term capital gains, regardless of how long you
have owned shares. Short-term capital gains and any other taxable income
distributions are taxable to you as ordinary income. A portion of dividends from
ordinary income may qualify for the dividends-received deduction for
corporations.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to you.
50 About Your Investment
<PAGE>
A sale or exchange of your shares is a taxable event and may result in a capital
gain or loss which may be long-term or short term, generally depending on how
long you owned the shares.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
The fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Any such withheld amounts may be credited against your U.S. federal
income tax liability.
You may be subject to state, local and foreign taxes on fund distributions and
dispositions of fund shares. You should consult your tax advisor regarding the
particular tax consequences of an investment in a fund.
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices are used to determine the value of the funds' assets.
If reliable market prices are not readily available for a security or if a
security's price is not considered to be market indicative, that security may be
valued by another method that the Board or its delegate believes accurately
reflects fair value. In those circumstances where a security's price is not
considered to be market indicative, the security's valuation may differ from an
available market quotation.
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class, less all liabilities, by the number of shares
of that class outstanding. The per share net asset value of the Class B and
Class C shares of a fund will generally be lower than that of the Class A shares
of a fund because of the higher annual expenses borne by the Class B and Class C
shares.
To the extent that a fund invests in foreign securities, these securities may be
listed on foreign exchanges that trade on days when the fund does not price its
shares. As a result, the net asset value per share of a fund may change at a
time when shareholders are not able to purchase or redeem their shares.
About Your Investment 51
<PAGE>
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from receipt by a fund of the purchase amount.
The redemption of shares within certain time periods may be subject to
contingent deferred sales charges, as noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholders of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The funds will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and Kemper Distributors, Inc. each reserves the right to reject purchases
of fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. The funds reserve the right to
withdraw all or any part of the offering made by this prospectus and to reject
purchase orders. Also, from time to time, each fund may temporarily suspend the
offering of its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an
52 About Your Investment
<PAGE>
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through Kemper Service
Company, the Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in kind"). These securities will be chosen by the fund and valued as they are
for purposes of computing the fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.
About Your Investment 53
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the funds' or certain
classes of a fund's financial performance for the periods reflected below.
Certain information reflects financial results for a single fund share. The
total return figures show what an investor in a fund (or certain classes of a
fund) would have earned (or lost) assuming reinvestment of all distributions.
This information, for all funds except Value Fund, has been audited by Ernst &
Young LLP. With respect to Value Fund, this information has been audited by
Pricewaterhouse Coopers LLP. The report of each of the auditors, along with the
fund's financial statements, are included in the funds' annual reports, which
are available upon request by calling the Kemper Funds at 1-800-621-1048.
Kemper Contrarian Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $21.13 16.93 16.20 12.18 13.62
- ----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .28 .23 .23 .26 .28
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 3.48 4.25 2.07 5.05 (.28)
- ----------------------------------------------------------------------------------------
Total from investment
operations 3.76 4.48 2.30 5.31 --
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .27 .20 .22 .24 .28
- ----------------------------------------------------------------------------------------
Distribution from net
realized gain 1.72 .08 1.35 1.05 1.16
- ----------------------------------------------------------------------------------------
Total dividends 1.99 .28 1.57 1.29 1.44
- ----------------------------------------------------------------------------------------
Net asset value, end of period $22.90 21.13 16.93 16.20 12.18
- ----------------------------------------------------------------------------------------
Total return (not annualized) 19.51% 26.58 14.42 44.57 (.03)
- ----------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.37% 1.35 1.23 1.25 1.25
- ----------------------------------------------------------------------------------------
Net investment income 1.36% 1.47 1.56 1.85 1.89
- ----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.37% 1.35 1.25 1.66 1.42
- ----------------------------------------------------------------------------------------
Net investment income 1.36% 1.47 1.54 1.44 1.71
- ----------------------------------------------------------------------------------------
</TABLE>
54 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.08 16.92 16.20 15.26
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .08 .08 .11 .07
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain 3.46 4.22 2.07 1.85
- ----------------------------------------------------------------------------------------
Total from investment operations 3.54 4.30 2.18 1.92
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .06 .11 .07
- ----------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- ----------------------------------------------------------------------------------------
Total dividends 1.80 .14 1.46 .98
- ----------------------------------------------------------------------------------------
Net asset value, end of period $22.82 21.08 16.92 16.20
- ----------------------------------------------------------------------------------------
Total return (not annualized) 18.32% 25.44 13.61 12.83
- ----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.31% 2.26 2.11 2.00
- ----------------------------------------------------------------------------------------
Net investment income .42% .56 .68 .88
- ----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.31% 2.26 2.34 2.36
- ----------------------------------------------------------------------------------------
Net investment income .42% .56 .45 .52
- ----------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 55
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.06 16.90 16.20 15.26
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .06 .11 .08
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.47 4.20 2.05 1.85
- ---------------------------------------------------------------------------------------------
Total from investment operations 3.52 4.26 2.16 1.93
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .04 .02 .11 .08
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- ---------------------------------------------------------------------------------------------
Total dividends 1.76 .10 1.46 .99
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $22.82 21.06 16.90 16.20
- ---------------------------------------------------------------------------------------------
Total return (not annualized) 18.25% 25.26 13.51 12.85
- ---------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.40% 2.47 2.12 1.95
- ---------------------------------------------------------------------------------------------
Net investment income .33% .35 .67 .93
- ---------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.40% 2.47 2.80 2.31
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .33% .35 (.01) .57
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $263,713 178,115 77,592 25,482 12,983
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 64% 77 95 30 16
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges.
Scudder Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the period ended
December 31, 1996. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
56 Financial Highlights
<PAGE>
Kemper-Dreman Financial Services Fund
<TABLE>
<CAPTION>
For the period from March 9, 1998
(commencement of operations)
to November 30, 1998
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .03 (.01) (.01)
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .12 .10 .12
- ---------------------------------------------------------------------------------------------
Total from investment operations .15 .09 .11
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $9.65 9.59 9.61
- ---------------------------------------------------------------------------------------------
Total return (not annualized) 1.58% .95 1.16
- ---------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.36% 2.14 2.11
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .55% (.23) (.20)
- ---------------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 1.55% 2.29 2.26
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .36% (.38) (.35)
- ---------------------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period (in thousands) $224,161
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5%
- ---------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net Assets are computed without this expense waiver or
absorption.
Financial Highlights 57
<PAGE>
Kemper-Dreman High Return Equity Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $33.52 26.52 21.49 15.11 15.50
- ------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .73 .54 .39 .26 .25
- ------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 3.80 6.89 5.75 6.76 (.39)
- ------------------------------------------------------------------------------------------------
Total from investment
operations 4.53 7.43 6.14 7.02 (.14)
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .86 .37 .38 .24 .25
- ------------------------------------------------------------------------------------------------
Distribution from net
realized gain 1.50 .06 .73 .40 --
- ------------------------------------------------------------------------------------------------
Total dividends 2.36 .43 1.11 .64 .25
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $35.69 33.52 26.52 21.49 15.11
- ------------------------------------------------------------------------------------------------
Total return (not annualized) 14.25% 28.15 28.79 46.86 (.99)
- ------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.19% 1.22 1.21 1.25 1.25
- ------------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.55 1.58
- ------------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.19% 1.22 1.21 1.57 1.39
- ------------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.23 1.44
- ------------------------------------------------------------------------------------------------
</TABLE>
58 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $33.37 26.44 21.47 19.45
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .31 .19 .07
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 3.75 6.84 5.72 2.41
- ---------------------------------------------------------------------------------------
Total from investment operations 4.20 7.15 5.91 2.48
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .56 .16 .21 .06
- ---------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- ---------------------------------------------------------------------------------------
Total dividends 2.06 .22 .94 .46
- ---------------------------------------------------------------------------------------
Net asset value, end of period $35.51 33.37 26.44 21.47
- ---------------------------------------------------------------------------------------
Total return (not annualized) 13.22% 27.10 27.63 12.88
- ---------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.06% 2.12 2.20 2.00
- ---------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.13 .61
- ---------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.06% 2.12 2.31 2.35
- ---------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.02 .26
- ---------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 59
<PAGE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $33.38 26.45 21.48 19.45
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .32 .20 .09
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain 3.79 6.83 5.72 2.41
- -----------------------------------------------------------------------------------------
Total from investment operations 4.24 7.15 5.92 2.50
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .58 .16 .22 .07
- -----------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- -----------------------------------------------------------------------------------------
Total dividends 2.08 .22 .95 .47
- -----------------------------------------------------------------------------------------
Net asset value, end of period $35.54 33.38 26.45 21.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) 13.32% 27.10 27.66 12.94
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.01% 2.10 2.22 1.95
- -----------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.11 .66
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.01% 2.10 2.33 2.30
- -----------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.00 .31
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $5,188,621 2,931,721 737,834 98,196 35,005
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 7% 5 10 18 12
- --------------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. waived a portion of its management fee and absorbed
certain operating expenses of the fund through the year ended December 31, 1996.
The Other Ratios to Average Net Assets are computed without this expense waiver
or absorption.
60 Financial Highlights
<PAGE>
Kemper Small Cap Relative Value Fund
<TABLE>
<CAPTION>
For the period from May 6, 1998
(commencement of operations)
to September 30, 1998
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.03) (.03)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized loss (1.93) (1.93) (1.92)
- ------------------------------------------------------------------------------------------------
Total from investment operations (1.93) (1.96) (1.95)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $7.57 7.54 7.55
- ------------------------------------------------------------------------------------------------
Total return (not annualized) (20.32)% (20.63) (20.53)
- ------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the Fund 1.52% 2.40 2.37
- ------------------------------------------------------------------------------------------------
Net investment loss (.15)% (1.03) (1.00)
- ------------------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 12.36% 16.91 12.43
- ------------------------------------------------------------------------------------------------
Net investment loss (10.99)% (15.54) (11.06)
- ------------------------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------------------------
Net assets at end of period $1,757,385
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 7%
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption. Per share data
were determined based on average shares outstanding.
Financial Highlights 61
<PAGE>
Kemper Small Cap Value Fund
<TABLE>
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $21.83 18.28 14.50 10.85 11.23
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .06 .05 .14 (.02) --
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) (3.39) 3.50 4.14 4.64 .02
- -----------------------------------------------------------------------------------------------
Total from investment
operations (3.33) 3.55 4.28 4.62 .02
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- -- .07 -- --
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .70 -- .43 .97 .40
- -----------------------------------------------------------------------------------------------
Total dividends .70 -- .50 .97 .40
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $17.80 21.83 18.28 14.50 10.85
- -----------------------------------------------------------------------------------------------
Total return (not annualized) (15.69)% 19.42 29.60 43.29 .15
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.42% 1.32 1.31 1.25 1.25
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .87 (.16) (.03)
- -----------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.42% 1.32 1.47 1.83 1.82
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .71 (.74) (.61)
- -----------------------------------------------------------------------------------------------
</TABLE>
62 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Eleven
months
Year ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS B 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.46 18.14 14.48 15.75
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12) (.04) .01 (.02)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (3.31) 3.36 4.11 (.41)
- -----------------------------------------------------------------------------------------
Total from investment operations (3.43) 3.32 4.12 (.43)
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -----------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -----------------------------------------------------------------------------------------
Net asset value, end of period $17.33 21.46 18.14 14.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) (16.45)% 18.30 28.54 (2.52)
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.34% 2.34 2.12 2.00
- -----------------------------------------------------------------------------------------
Net investment income (loss) (.67)% (.51) .06 (.99)
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.34% 2.34 2.49 2.39
- -----------------------------------------------------------------------------------------
Net investment loss (.67)% (.51) (.31) (1.38)
- -----------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 63
<PAGE>
<TABLE>
<CAPTION>
Eleven
months
Year ended ended Year Sept. 11
November November ended to
30, 30, Dec. 31, Dec. 31,
CLASS C 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.51 18.17 14.48 15.75
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12) (.03) .01 (.02)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (3.30) 3.37 4.14 (.41)
- -----------------------------------------------------------------------------------------
Total from investment operations (3.42) 3.34 4.15 (.43)
- -----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -----------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -----------------------------------------------------------------------------------------
Net asset value, end of period $17.39 21.51 18.17 14.48
- -----------------------------------------------------------------------------------------
Total return (not annualized) (16.37)% 18.38 28.77 (2.51)
- -----------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.28% 2.24 2.06 1.95
- -----------------------------------------------------------------------------------------
Net investment income (loss) (.61)% (.41) .12 (.94)
- -----------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.28% 2.24 2.19 2.35
- -----------------------------------------------------------------------------------------
Net investment loss (.61)% (.41) (.01) (1.34)
- -----------------------------------------------------------------------------------------
<CAPTION>
Eleven
Year months
ended ended
November November
30, 30, Year ended December 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period
(in thousands) $980,411 1,263,144 273,222 31,606 6,931
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 50% 83 23 86 140
- -----------------------------------------------------------------------------------------------
</TABLE>
Notes: Per share data for the year ended December 31, 1996 were determined based
on average shares outstanding. Total return does not reflect the effect of any
sales charges.
Scudder Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the period ended
December 31, 1996. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
64 Financial Highlights
<PAGE>
Kemper U.S. Growth and Income Fund
<TABLE>
<CAPTION>
For the period from January 30, 1998
(commencement of operations)
to September 30, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $9.50 9.50 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .03 .03
- --------------------------------------------------------------------------------------
Net realized and unrealized loss (.38) (.38) (.38)
- --------------------------------------------------------------------------------------
Total from investment operations (.31) (.35) (.35)
- --------------------------------------------------------------------------------------
Less distributions from net investment income .07 .03 .03
- --------------------------------------------------------------------------------------
Net asset value, end of period $9.12 9.12 9.12
- --------------------------------------------------------------------------------------
Total return (not annualized) (3.36)% (3.72) (3.71)
- --------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the Fund 1.36% 2.01 1.99
- --------------------------------------------------------------------------------------
Net investment income 1.56% .91 .93
- --------------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
Expenses 2.59% 3.49 3.25
- --------------------------------------------------------------------------------------
Net investment income (loss) .33% (.57) (.33)
- --------------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $18,563,000
- --------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 93%
- --------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 65
<PAGE>
Kemper Value Fund
<TABLE>
<CAPTION>
For the period April 16, 1998
(commencement of sale of
Class A , B and C shares) to August 31, 1998
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $25.42 $25.42 $25.42
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .00 .01
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (4.30) (4.31) (4.30)
- ----------------------------------------------------------------------------------------
Total from investment operations (4.23) (4.31) (4.29)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $21.19 $21.11 $21.13
- ----------------------------------------------------------------------------------------
Total return (%) (b) (16.64)** (16.96)** (16.88)**
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
Net assets, end of period ($ millions) 28 18 3
- ----------------------------------------------------------------------------------------
Ratio of operating expenses, net to average
daily net assets (%) 1.34* 2.12* 2.11*
- ----------------------------------------------------------------------------------------
Ratio of net investment income to
average daily net assets (%) .86* .03* .08*
- ----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47.0 47.0 47.0
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
66 Financial Highlights
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling Kemper at the toll-free
telephone number listed below. The Statement of Additional Information contains
more information on fund investments and operations. The Shareholder Services
Guide contains more information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the funds'
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By Phone Call Kemper at: 1-800-621-1048
- --------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
In Person Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
- --------------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
Kemper Contrarian Fund 811-5385
Kemper-Dreman Financial Services Fund 811-08599
Kemper-Dreman High Return Equity Fund 811-5385
Kemper Small Cap Relative Value Fund 811-08393
Kemper Small Cap Value Fund 811-5385
Kemper U.S. Growth and Income Fund 811-08393
Kemper Value Fund 811-1444
[PRINTED WITH SOY INK LOGO] [RECYCLE LOGO] Printed on recycled paper
<PAGE>
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
February 1, 1999
KEMPER FUNDS LOGO
KEMPER EQUITY TRUST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
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 February 1, 1999. The
prospectus may be obtained without charge from the Fund at the address or
telephone number on this cover or the firm from which this Statement of
Additional Information was received.
---------------
TABLE OF CONTENTS
Page
----
Investment Restrictions.......................................
Investment Policies and Techniques............................
Portfolio Transactions........................................
Investment Manager and Underwriter............................
Purchase, Repurchase and Redemption of Shares.................
Dividends, Distributions and Taxes............................
Performance...................................................
Officers and Trustees.........................................
Shareholder Rights............................................
Net Asset Value...............................................
Additional Information........................................
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. The financial
statements appearing in the Fund's 1998 Annual Report to Shareholders are
incorporated herein by reference. The Fund's Annual Report accompanies this
Statement of Additional Information.
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 except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time; 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
(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.
2
<PAGE>
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.
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 Standard & Poor's Corporation, or Baa or
above by Moody's Investors Services, Inc.), 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.
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 such high yield/high risk securities, please refer
to "Other Considerations."
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 the Trust'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.
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
3
<PAGE>
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 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 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
4
<PAGE>
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,
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.
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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.
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
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(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.
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
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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
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
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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
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.
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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.
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 previously, 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
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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, 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
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
11
<PAGE>
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%.
The table below shows total brokerage commissions paid by the Fund for the most
recent fiscal year, and the percentage thereof that was allocated to firms based
upon research information provided.
[TO BE UPDATED]
Allocated to Firms
Based on Research in
Fund Fiscal 1998 Fiscal 1998
- ---- ----------- -----------
Kemper-Dreman Financial
Services Fund To Be Updated To Be Updated
12
<PAGE>
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.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in the Adviser) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services, Inc. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services, Inc., with the balance initially owned by former
B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment management
agreement with the Adviser was deemed to have been assigned and, therefore,
terminated. The Board approved a new investment management agreement with the
Adviser, which is substantially identical to the investment management agreement
dated March 2, 1998, except for the dates of execution and termination. This
agreement became effective on September 7, 1998 and was approved at a special
shareholder meeting held on [December 15, 1998.]
The Agreement dated September 7, 1998 was approved by the Trustees on [August 6,
1998] and ratified on [September 15, 1998]. The Agreement will continue in
effect until September 30, 1999 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Adviser or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' notice and
automatically terminates in the event of its assignment.
Under the Agreement, the 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
13
<PAGE>
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
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.
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. The investment management
fee paid by the Fund from March 9, 1998 (commencement of operations) to November
30, 1998 is $721,000 after waiver.
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
14
<PAGE>
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.
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 Adviser pays the Sub-Adviser for its services a
sub-advisory fee, payable monthly, at the annual rate of 0.24% of the first $250
million of the Fund's average daily net assets, 0.23% of the average daily net
assets between $250 million and $1 billion, 0.224% of average daily net assets
between $1 billion and $2.5 billion, 0.218% of average daily net assets between
$2.5 billion and $5 billion, 0.208% of average daily net assets between $5
billion and $7.5 billion, 0.205% of average daily net assets between $7.5
billion and $10 billion, 0.202% of average daily net assets between $10 billion
and $12.5 billion and 0.198% of the Fund's average daily net assets over $12.5
billion. The sub-advisory fee paid by the Fund from March 9, 1998 (commencement
of operations) to November 30, 1998 is $86,000.
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 September 7, 1998 was approved by the Trustees
on July 17, 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"), 222
South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the Adviser, is
the principal
15
<PAGE>
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 September 7, 1998 was approved by the Trustees
on July 17, 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.
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.
The following information concerns the underwriting commissions paid in
connection with the distribution of the Fund's Class A shares for the period of
March 9, 1998 (commencement of operations) to November 30, 1998.
[TO BE UPDATED]
<TABLE>
<CAPTION>
Commissions Commissions KDI Commissions Paid to KDI
Class A Shares Fiscal Year Retained by KDI Paid to All Firms Affiliated Firms
- -------------- ----------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Kemper-Dreman Financial
Services Fund 1998 $86,000 $87,000 0
</TABLE>
CLASS B SHARES. For its services under the 12b-1 Plan, 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 12b-1 Plan, 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 12b-1 Plan 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.
16
<PAGE>
The table below shows amounts paid in connection with the Fund's Rule 12b-1 Plan
for the period of March 9, 1998 (commencement of operations) to November 30,
1998.
<TABLE>
<CAPTION>
Contingent Deferred
Distribution Expenses Distribution Fees Paid by Sales Charges Paid to
Incurred by Underwriter Fund to Underwriter Underwriter
----------------------- ------------------- -----------
Fund Class B Class C Class B Class C Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Kemper-Dreman
Financial
Services Fund To be Updated 397,000 60,000 122,000 7,000
</TABLE>
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.)
Expenses of the Fund and of KDI in connection with the Rule 12b-1 plans for the
Class B and Class C shares are set forth below for the period of March 9, 1998
(commencement of operations) to November 30, 1998. A portion of the marketing,
sales and operating expenses shown below could be considered overhead expense.
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
---------------------------------------
Contingent Total Distribution
Deferred Distribution Paid by
Distribution Sales Fees Paid KDI to KDI Advertising Marketing Misc.
Class B Fiscal Fees Paid by Charges by KDI to Affiliated and Prospectus and Sales Operating Interest
Shares Year Fund to KDI Paid to KDI Firms Firms Literature Printing Expenses Expenses Expenses
- ------ ---- ----------- ----------- ----- ----- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kemper-Dreman
Financial
Services Fund 1998 $397,000 122,000 3,952,000 33,000 240,000 28,000 597,000 82,000 234,000
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
---------------------------------------
Contingent Total Distribution
Deferred Distribution Paid by
Distribution Sales Fees Paid KDI to KDI Advertising Marketing Misc.
Class C Fiscal Fees Paid by Charges by KDI to Affiliated and Prospectus and Sales Operating Interest
Shares Year Fund to KDI Paid to KDI Firms Firms Literature Printing Expenses Expenses Expenses
- ------ ---- ----------- ----------- ----- ----- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kemper-Dreman
Financial
Services Fund 1998 $60,000 7,000 119,000 2,000 48,000 6,000 121,000 17,000 6,000
</TABLE>
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
0.25% of average daily net assets of each of the Class A, B and C shares of the
Fund.
17
<PAGE>
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 0.25% 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 0.25% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms a service fee at a rate of up to 0.25% (calculated monthly
and normally paid quarterly) of the net assets attributable to Class B and C
shares maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or KET. Firms to which service fees may be paid may include affiliates of
KDI.
The following information concerns the administrative services fee paid by the
Fund to KDI for the period of March 9, 1998 (commencement of operations) to
November 30, 1998:
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Total Service Fees Service Fees Paid by KDI
Fund Fiscal Year Class A Class B Class C Paid by KDI to Firms to KDI Affiliated Firms
- ---- ----------- ------- ------- ------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper-Dreman
Financial Services
Fund 1998 $123,000* 132,000 20,000 344,000 0
</TABLE>
* Amounts shown after expense waiver.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the 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. For the period of March 9, 1998
(commencement of operations) to November 30, 1998, the Fund paid $88,000 in fees
to Scudder Fund Accouting Corporation 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. The paid to KSvC a total of
$237,000 for the period of March 9, 1998 (commencement of operations) to
November 30, 1998
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
18
<PAGE>
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, REPURCHASE AND REDEMPTION OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales charge waived
of 5.75% of the public or reduced for certain
offering price purchases
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; 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.
19
<PAGE>
<TABLE>
<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
------------------ ----------------- ---------------- --------------
<S> <C> <C> <C>
Less than $50,000 .................. 5.75% 6.10% 5.20%
$50,000 but less than $100,000 ..... 4.50 4.71 4.00
$100,000 but less than $250,000 .... 3.50 3.63 3.00
$250,000 but less than $500,000 .... 2.60 2.67 2.25
$500,000 but less than $1 million .. 2.00 2.04 1.75
$1 million and over ................ .00** .00** ***
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
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 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 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.
20
<PAGE>
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 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
21
<PAGE>
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."
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.
22
<PAGE>
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.
The Fund reserves the right to withdraw all or any part of the offering made
herein 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.
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 Statement of Additional Information.
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. 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.
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 herein.
23
<PAGE>
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 herein are provided because
of anticipated economies of scale in sales and sales-related efforts.
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
24
<PAGE>
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
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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.
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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.
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<PAGE>
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper 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 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.
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<PAGE>
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 Funds 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 Investors Municipal Cash Fund is available for sale
only in certain states. Except as otherwise permitted by applicable regulations,
60 days' prior written notice of any termination or material change will be
provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the 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
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<PAGE>
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 advisors before
establishing a retirement plan.
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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 herein.
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.
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.
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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.
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)
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<PAGE>
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.
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
33
<PAGE>
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
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
34
<PAGE>
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 under "Special Features--Class A Shares--Combined Purchases" (other
than shares of Kemper Cash Reserves Fund not acquired by exchange from another
Kemper Mutual Fund) may reinvest the amount redeemed at net asset value at the
time of the reinvestment in shares of the Fund or in shares of the other Kemper
Mutual Funds within six months of the redemption as described 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.
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<PAGE>
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.
36
<PAGE>
PERFORMANCE
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.
Average Annual Total Return for period ended November 30, 1998
(Adjusted for the maximum sales charge)
---------------------------------------
Life of
1-Year Fund(1)
------ -------
Class A shares N/A 4.27%
Class B shares N/A -3.05
Class C shares N/A 0.16
(1) For the period beginning March 9, 1998 (commencement of operations).
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.
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.
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<PAGE>
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. 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, the 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. Information regarding bank products may be based upon, among other
things, the BANK RATE MONITOR National Index(TM) for certificates of deposit,
which is an unmanaged index and is based on stated rates and the annual
effective yields of certificates of deposit in the ten largest banking markets
in the United States, or the CDA Investment Technologies, Inc. Certificate of
Deposit Index, which is an unmanaged index based on the average monthly yields
of certificates of deposit.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, 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:
*DANIEL PIERCE, Trustee (3/18/34) Chairman of the Board and Trustee, Two
International Place, Boston, Massachusetts. Managing Director, Scudder Kemper
Investments, Inc.
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<PAGE>
*MARK S. CASADY, Trustee (9/21/60) Trustee and Vice President, Two
International Place, Boston, Massachusetts. Managing Director, Scudder Kemper
Investments, Inc.
JAMES E. AKINS (10/15/26) Trustee, 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, 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, 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 Northern Institutional Funds; formerly,
Trustee of the Pilot Funds.
FRED B. RENWICK (2/1/30) Trustee, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc.; Director, the Wartburg Home Foundation;
Chairman, Investment Committee of Morehouse College Board of Trustees;
Chairman, American Bible Society Investment Committee; formerly, member of the
Investment Committee of Atlanta University Board of Trustees; formerly,
Director of Board of Pensions, Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35) Trustee, 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired, formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33) Trustee, 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.
*KATHRYN L. QUIRK (12/3/52), Trustee, 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.
*JOHN R. 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.
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<PAGE>
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.
[TO BE UPDATED]
Total Compensation
Aggregate from Kemper Fund
Compensation Complex Paid to
Name of Board Members From KET Board Members(2)
James E. Akins......................... $ 0 $
Arthur R. Gottschalk(1)................ $ 0 $
Frederick T. Kelsey(1)................. $ 0 $
Fred B. Renwick........................ $ 0 $
John B. Tingleff....................... $ 0 $
John G. Weithers....................... $ 0 $
- ----------
(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 December 31, 1998 the officers and trustees of the Fund, as a group, owned
less than 1% of the then outstanding shares of the Fund. No person owned of
record 5% or more of the outstanding shares of any class of any Fund, except the
following :
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 A 10.70
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 A 10.17
US Clearing Corp
Attn Mutual Funds Dept
26 Broadway
New York, NY 10004-261702 A 6.13
Olde Discount Corporation
751 Griswood st
Detriot, MI 48226-513274 A 6.85
40
<PAGE>
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 B 10.93
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 B 11.97
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 B 5.89
Everen Securities, Inc.
111 E Kilbourn Ave
Milwaukee, WI 53202 B 9.84
National Financial Svcs Corp.,
200 Liberty Street
New York, NY 10281 C 6.85
Donaldson Lufkin Jenrette
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303 C 14.11
MLPF&S for the Sole Benefit of ITS
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246 C 11.85
SHAREHOLDER RIGHTS
The Fund is a series of Kemper Equity Trust, an open-end 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
41
<PAGE>
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 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.
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.
42
<PAGE>
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 Sub-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
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.
43
<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.
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.
44
<PAGE>
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.
45
<PAGE>
KEMPER EQUITY TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C>
(a) Declaration of Trust dated January 6, 1998.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.)
(b) By-laws.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.)
(c) Text of Share Certificate. Filed herein.
(d)(1) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper-Dreman Financial Services Fund, and Scudder Kemper Investments, Inc.
dated March 2, 1998. Filed herein.
(d)(2) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper-Dreman Financial Services Fund, and Scudder Kemper Investments, Inc.
dated September 7, 1998. Filed herein.
(d)(3) Sub-Advisory Agreement between the Registrant, on behalf of Kemper-Dreman
Financial Services Fund, and Dreman Value Management, L.L.C. dated March 2,
1998. Filed herein.
(d)(4) Sub-Advisory Agreement between the Registrant, on behalf of Kemper-Dreman
Financial Services Fund, and Dreman Value Management, L.L.C. dated September
7, 1998. Filed herein.
(e)(1) Underwriting Agreement between the Registrant and Kemper Distributors, Inc.
dated March 2, 1998. Filed herein.
(e)(2) Underwriting Agreement between the Registrant and Kemper Distributors, Inc.
dated August 1, 1998. Filed herein.
(e)(3) Underwriting Agreement between the Registrant and Kemper Distributors, Inc.
dated September 7, 1998. Filed herein.
(f) Inapplicable.
(g)(1) Custodian Agreement between the Registrant, on behalf of Kemper-Dreman
Financial Services Fund, and State Street Bank and Trust Company dated March
9, 1998. Filed herein.
(h)(1) Agency Agreement between the Registrant, on behalf of Kemper-Dreman
Financial Services Fund, and Kemper Service Company dated March 2, 1998.
Filed herein.
(h)(2) Fund Accounting Services Agreement between Registrant on behalf of
Part C - Page 2
<PAGE>
Kemper-Dreman Financial Services and Scudder Fund Accounting Corp. dated
March 2, 1998. Filed herein.
(h)(3) Administrative Services Agreement between the Registrant on behalf of
Kemper-Dreman Financial Services Fund, and Kemper Distributors, Inc. dated
March 2, 1998. Filed herein.
(i) Inapplicable.
(j) Consent of Independent Accountants. Filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m)(1) Rule 12b-1 Plan between Kemper-Dreman Financial Services Fund (Class B
Shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
(m)(2) Rule 12b-1 Plan between Kemper-Dreman Financial Services Fund (Class C
Shares) and Kemper Distributors, Inc. dated August 1, 1998. Filed herein.
(n) Financial Data Schedule. Filed herein.
(o) Rule 18f-3 Plan. Filed herein.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 23(a) hereto, which is incorporated herein by reference) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70%
Part C - Page 3
<PAGE>
interest, and ZKI was combined with Scudder ("Transaction"). In connection with
the trustees' evaluation of the Transaction, Zurich agreed to indemnify the
Registrant and the trustees who were not interested persons of ZKI or Scudder
(the "Independent Trustees") for and against any liability and expenses based
upon any action or omission by the Independent Trustees in connection with their
consideration of and action with respect to the Transaction. In addition,
Scudder has agreed to indemnify the Registrant and the Independent Trustees for
and against any liability and expenses based upon any misstatements or omissions
by Scudder to the Independent Trustees in connection with their consideration of
the Transaction.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Part C - Page 4
<PAGE>
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* 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>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
Part C - Page 5
<PAGE>
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer Trustee and Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Daniel Pierce Director, Chairman Trustee
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
Part C - Page 6
<PAGE>
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois, on the 25th day of
January, 1999.
By: /s/Mark S. Casady
---------------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 25, 1999 on behalf of
the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/Daniel Pierce* Chairman and Trustee
- --------------------------------------
/s/James E. Akins* Trustee
- --------------------------------------
/s/Arthur R. Gottschalk* Trustee
- --------------------------------------
Arthur R. Gottschalk
/s/Frederick T. Kelsey* Trustee
- --------------------------------------
Frederick T. Kelsey
/s/Thomas W. Littauer
- --------------------------------------
Thomas W. Littauer Trustee
/s/Fred B. Renwick* Trustee
- --------------------------------------
Fred B. Renwick
/s/John B. Tingleff* Trustee
- --------------------------------------
John B. Tingleff
/s/John G. Weithers* Trustee
- --------------------------------------
John G. Weithers
Treasurer (Principal Financial
/s/John R. Hebble and Accounting Officer)
- --------------------------------------
John R. Hebble
By: /s/Philip J. Collora
------------------------
Philip J. Collora*
* Philip J. Collora signs this document pursuant to powers of attorney
filed with Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed on December 3, 1998.
<PAGE>
File No. 33-43815
File No. 811-08599
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 2
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 3
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER EQUITY TRUST
<PAGE>
KEMPER EQUITY TRUST
EXHIBIT INDEX
Exhibit (c)
Exhibit (d)(1)
Exhibit (d)(2)
Exhibit (d)(3)
Exhibit (d)(4)
Exhibit (e)(1)
Exhibit (e)(2)
Exhibit (e)(3)
Exhibit (g)(1)
Exhibit (h)(1)
Exhibit (h)(2)
Exhibit (h)(3)
Exhibit (j)
Exhibit (m)(1)
Exhibit (m)(2)
Exhibit (n)
Exhibit (o)
TEXT OF SHARE CERTIFICATE
[Name]
is the owner of [number] shares
of beneficial interest in the above noted Fund (the "FUND"), of the
series and class, if any, specified, fully paid and nonassessable, the
said shares being issued and held subject to the provisions of the
Agreement and Declaration of Trust of the Fund, and all amendments
thereto, copies of which are on file with the Secretary of The
Commonwealth of Massachusetts. The said owner by accepting this
certificate agrees to and is bound by all of the said provisions. The
shares represented hereby are transferable in writing by the owner
thereof in person or by attorney upon surrender of this certificate to
the Fund properly endorsed for transfer. This certificate is executed
on behalf of the Trustees of the Fund as Trustees and not individually
and the obligations hereof are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the
assets and property of the Fund or, if applicable, the specified
series of the Fund. The shares may be subject to a contingent deferred
sales charge. This certificate is not valid unless countersigned by
the Transfer Agent.
INVESTMENT MANAGEMENT AGREEMENT
Kemper 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 and restrictions set forth
<PAGE>
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
2
<PAGE>
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
3
<PAGE>
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
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.
4
<PAGE>
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.
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
5
<PAGE>
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
INVESTMENT MANAGEMENT AGREEMENT
Kemper Equity Trust
Two International Place
Boston, Massachusetts 02110
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper-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 the amount of
-2-
<PAGE>
dividends and distributions available to be paid by the Fund to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United
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<PAGE>
States Dollars on the last day of each month the unpaid balance of a fee equal
to the excess of 1/12 of 0.75 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
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.
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<PAGE>
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.
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,
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<PAGE>
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
------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
------------------------
Treasurer
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SUB-ADVISORY AGREEMENT
AGREEMENT made this 2nd day of March, 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 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
<PAGE>
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 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.
2
<PAGE>
(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 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.
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<PAGE>
(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 31a-2 under the Investment Company Act any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 31a-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 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
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<PAGE>
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 Financial Services Series 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, 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.
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<PAGE>
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 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.
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<PAGE>
(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
(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.
-7-
<PAGE>
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 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.
-8-
<PAGE>
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.
(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,
-9-
<PAGE>
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.
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
-10-
<PAGE>
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 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,
-11-
<PAGE>
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 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-
<PAGE>
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 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.
-13-
<PAGE>
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: /s/Stephen R. Beckwith
--------------------------
Title: CFO
-----------------------
DREMAN VALUE MANAGEMENT, L.L.C.
By: /s/David N. Dreman
--------------------------
Title: Chairman
------------------------
FOR THE PURPOSE OF ACCEPTING ITS
OBLIGATIONS UNDER SECTION 7 HEREIN ONLY
KEMPER EQUITY TRUST
By: /s/Mark S. Casady
--------------------------
Title: President
-----------------------
-14-
SUB-ADVISORY AGREEMENT
AGREEMENT made this 7th day of September, 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 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
<PAGE>
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 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 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 31a-2 under the Investment Company Act any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 31a-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.
2
<PAGE>
(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 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 Financial Services Series 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, 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.
3
<PAGE>
(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 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 original Sub-Advisory Agreement dated March 2, 1998.
Sub-Adviser may terminate this Agreement effective on or after the third
anniversary of the Agreement dated March 2, 1998 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
(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;
4
<PAGE>
(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 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.
(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
5
<PAGE>
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.
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 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.
6
<PAGE>
(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 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 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.
7
<PAGE>
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: /s/Cornelia M. Small
----------------------------------
Title: Managing Director
-------------------------------
DREMAN VALUE MANAGEMENT, L.L.C.
By: /s/David N. Dreman
----------------------------------
Title: Chairman
-------------------------------
FOR THE PURPOSE OF ACCEPTING ITS
OBLIGATIONS UNDER SECTION 7 HEREIN
ONLY
KEMPER EQUITY TRUST
By: /s/Mark S. Casady
----------------------------------
Title: President
-------------------------------
8
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: /s/Mark S. Casady
----------------------
Mark S. Casady
President
ATTEST:
/s/Maureen Kane
- --------------------------------
Title: Ass't Secretary
------------------------
KEMPER DISTRIBUTORS, INC.
By:/s/James L. Greenawalt
------------------------
Title: President
---------------------
ATTEST:
/s/Philip J. Collora
- -------------------------------
Title: Assist. Secretary
------------------------
7
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 1st day of August, 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of existing and potential shareholders who may be
clients of such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively
<PAGE>
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable federal and state laws and regulations and to the Fund's
organizational documents.
2. KDI shall sell shares of the Fund to or through qualified Firms in
such manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold
by KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. The price the Fund shall receive for all
shares purchased from it shall be the net asset value used in determining the
public offering price applicable to the sale of such shares. Any excess of the
sales price over the net asset value of the shares of the Fund sold by KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, any may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered
under the Securities Act for sale as herein contemplated such shares as KDI
shall reasonably request and as the Securities and Exchange Commission shall
permit to be so registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
<PAGE>
5. KDI shall issue and deliver or shall arrange for various Firms to
issue and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Fund,
or to any corporation or association, unless such sales are made in accordance
with the then current prospectus relating to the sale of such shares. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. The Fund will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) of any registration of
the Fund and its shares under the United States securities laws and expenses
incident to the issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing any prospectus and of
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with the offering of the shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, typesetting, printing and distribution of
any registration statement or prospectus, report or other communication to
shareholders in their capacity as such), (b) expenses of advertising in
connection with such offering and (c) expenses (other than the Fund's auditing
expenses) of qualifying or continuing the qualification of the shares for sale
and, in connection therewith, of qualifying or continuing
<PAGE>
the qualification of the Fund as a dealer or broker under the laws of such
states as may be designated by KDI under the conditions herein specified. No
transfer taxes, if any, which may be payable in connection with the issue or
delivery or shares sold as herein contemplated or of the certificates for such
shares shall be borne by the Fund, and KDI will indemnify and hold harmless the
Fund against liability for all such transfer taxes.
8. This Agreement shall become effective on the date hereof and shall
continue until March 1, 1999; and shall continue from year to year thereafter
only so long as such continuance is approved in the manner required by the
Investment Company Act.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. KDI will not use or distribute, or authorize the use, distribution
or dissemination by Firms or others in connection with the sale of Fund shares
any statements other than those contained in the Fund's current prospectus,
except such supplemental literature or advertising as shall be lawful under
federal and state securities laws and regulations. KDI will furnish the Fund
with copies of all such material.
10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. All parties hereto are expressly put on notice of the Fund's
Agreement and Declaration of Trust, and all amendments thereto, all of which are
on file with the Secretary of The Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding upon only the assets and property of the
Fund. With respect to any claim by KDI for recovery of any liability of the Fund
arising hereunder allocated to a particular series or class, whether in
accordance with the express terms hereof or otherwise, KDI shall have recourse
solely against the assets of that series or class to satisfy such claim and
shall have no recourse against the assets of any other series or class for such
purpose.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER EQUITY TRUST
By: /s/Mark S. Casady
---------------------
Title: President
----------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Ass't Sec.
-----------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
--------------------------
Title: President
---------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 7th day of September, 1998 between KEMPER 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 distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of existing and potential shareholders who may be
clients of such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively
<PAGE>
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable federal and state laws and regulations and to the Fund's
organizational documents.
2. KDI shall sell shares of the Fund to or through qualified Firms in
such manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold
by KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. The price the Fund shall receive for all
shares purchased from it shall be the net asset value used in determining the
public offering price applicable to the sale of such shares. Any excess of the
sales price over the net asset value of the shares of the Fund sold by KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, any may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered
under the Securities Act for sale as herein contemplated such shares as KDI
shall reasonably request and as the Securities and Exchange Commission shall
permit to be so registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
<PAGE>
5. KDI shall issue and deliver or shall arrange for various Firms to
issue and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Fund,
or to any corporation or association, unless such sales are made in accordance
with the then current prospectus relating to the sale of such shares. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. The Fund will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) of any registration of
the Fund and its shares under the United States securities laws and expenses
incident to the issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing any prospectus and of
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with the offering of the shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, typesetting, printing and distribution of
any registration statement or prospectus, report or other communication to
shareholders in their capacity as such), (b) expenses of advertising in
connection with such offering and (c) expenses (other than the Fund's auditing
expenses) of qualifying or continuing the qualification of the shares for sale
and, in connection therewith, of qualifying or continuing
<PAGE>
the qualification of the Fund as a dealer or broker under the laws of such
states as may be designated by KDI under the conditions herein specified. No
transfer taxes, if any, which may be payable in connection with the issue or
delivery or shares sold as herein contemplated or of the certificates for such
shares shall be borne by the Fund, and KDI will indemnify and hold harmless the
Fund against liability for all such transfer taxes.
8. This Agreement shall become effective on the date hereof and shall
continue until March 1, 1999; and shall continue from year to year thereafter
only so long as such continuance is approved in the manner required by the
Investment Company Act.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
9. KDI will not use or distribute, or authorize the use, distribution
or dissemination by Firms or others in connection with the sale of Fund shares
any statements other than those contained in the Fund's current prospectus,
except such supplemental literature or advertising as shall be lawful under
federal and state securities laws and regulations. KDI will furnish the Fund
with copies of all such material.
10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. All parties hereto are expressly put on notice of the Fund's
Agreement and Declaration of Trust, and all amendments thereto, all of which are
on file with the Secretary of The Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding upon only the assets and property of the
Fund. With respect to any claim by KDI for recovery of any liability of the Fund
arising hereunder allocated to a particular series or class, whether in
accordance with the express terms hereof or otherwise, KDI shall have recourse
solely against the assets of that series or class to satisfy such claim and
shall have no recourse against the assets of any other series or class for such
purpose.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER EQUITY TRUST
By: /s/Mark S. Casady
---------------------
Title: President
----------------
ATTEST:
/s/Maureen Kane
- ---------------
Title: Ass't Sec.
-----------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
--------------------------
Title: President
---------------
ATTEST:
/s/Joan V. Pearson
- ------------------
Title: Executive Assistant
--------------------------
CUSTODIAN CONTRACT
between
KEMPER EQUITY TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Employment of Custodian and Property to be Held By It..............1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States................2
2.1 Holding Securities........................................2
2.2 Delivery of Securities....................................2
2.3 Registration of Securities................................4
2.4 Bank Accounts.............................................5
2.5 Availability of Federal Funds.............................5
2.6 Collection of Income......................................5
2.7 Payment of Fund Monies....................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased......................................7
2.9 Appointment of Agents.....................................7
2.10 Deposit of Securities in U.S. Securities System...........7
2.11 Fund Assets Held in the Custodian's
Direct Paper System.......................................8
2.12 Segregated Account........................................8
2.13 Ownership Certificates for Tax Purposes .................10
2.14 Proxies..................................................10
2.15 Communications Relating to Portfolio Securities..........10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States...........................11
3.1 Appointment of Foreign Sub-Custodians....................11
3.2 Assets to be Held........................................11
3.3 Foreign Securities Depositories..........................11
3.4 Agreements with Foreign Banking Institutions.............11
3.5 Access of Independent Accountants of the Fund............11
3.6 Reports by Custodian.....................................11
3.7 Transactions in Foreign Custody Account..................12
3.8 Liability of Foreign Sub-Custodians......................12
3.9 Liability of Custodian...................................12
3.10 Reimbursement for Advances...............................13
3.11 Monitoring Responsibilities..............................13
3.12 Branches of U.S. Banks...................................13
3.13 Tax Law..................................................14
<PAGE>
TABLE OF CONTENTS
-----------------
Page
4. Payments for Sales or Repurchases or Redemptions
of Shares ........................................................14
5. Proper Instructions...............................................14
6. Actions Permitted without Express Authority.......................15
7. Evidence of Authority.............................................15
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income................16
9. Records...........................................................16
10. Opinion of Fund's Independent Accountants.........................16
11. Reports to Fund by Independent Public Accountants.................16
12. Compensation of Custodian.........................................17
13. Responsibility of Custodian.......................................17
14. Effective Period, Termination and Amendment.......................18
15. Successor Custodian...............................................19
16. Interpretive and Additional Provisions........................... 19
17. Additional Funds..................................................20
18. Massachusetts Law to Apply........................................20
19. Prior Contracts...................................................20
20. Shareholder Communications Election...............................20
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Kemper Equity Trust, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts and having its
principal place of business at 222 South Riverside Plaza, Chicago, Illinois
60606 (the "Fund"), and State Street Bank and Trust Company, a Massachusetts
trust company having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently intends to offer shares in one series,
Kemper-Dreman Financial Services Fund (such series together with all other
series subsequently established by the Fund and made subject to this Contract in
accordance with Article 17, being herein referred to as the "Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
of America ("domestic securities") and securities it desires to be held outside
the United States of America ("foreign securities") pursuant to the provisions
of the Fund's declaration of trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or political subdivision thereof
and any territory over which its political sovereignty extends (the "United
States" or
<PAGE>
"U.S."), but only in accordance with an applicable vote by the board of trustees
of the Fund (the "Board of Trustees") on behalf of the applicable Portfolio(s)
and provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodians for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which account
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
-2-
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
-3-
<PAGE>
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize reasonable efforts only to
(i) timely collect income
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<PAGE>
due the Fund on such securities and (ii) notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Collection of income due each Portfolio on
domestic securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund; the Custodian will have
no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data in its possession as may
be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly
entitled.
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<PAGE>
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
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<PAGE>
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such
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<PAGE>
securities have been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio; the Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such
securities has been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
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<PAGE>
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or
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<PAGE>
any subsequent release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
this clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the executive committee
thereof signed by an officer of the Fund and certified by the Fund's
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three (3) business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt
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<PAGE>
of Proper Instructions, together with a certified resolution of the
Board of Trustees, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the
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Portfolio(s) held by foreign sub-custodians, including but not limited
to an identification of entities having possession of Portfolio
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of its
customers indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Portfolio has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency
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<PAGE>
restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding
the foregoing provisions of this Section 3.9, in delegating custody
duties to State Street London Ltd., the Custodian shall not be relieved
of any responsibility to the Fund for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
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<PAGE>
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be
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considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. If given pursuant to procedures to be agreed upon by the Custodian
and the Fund, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
-15-
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per share of the
outstanding Shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio(s), shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Prospectus and shall advise the Fund and the Transfer Agent daily of the total
amount of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Prospectus.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting
-16-
<PAGE>
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
-17-
<PAGE>
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by such Portfolio, as required
by Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
-18-
<PAGE>
15. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
-19-
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Kemper-Dreman Financial Services Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
-----------------------------------
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
-20-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of March 9, 1998.
ATTEST KEMPER EQUITY TRUST
/s/Maureen Kane By: /s/Mark S. Casady
- --------------- ---------------------
Name: Maureen Kane Name:
Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/Thomas M. Lenz By: /s/Ronald E. Logue
- ----------------- ----------------------
Thomas M. Lenz Ronald E. Logue
Vice President Executive Vice President
-21-
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
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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,
7
<PAGE>
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
8
<PAGE>
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.
9
<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
10
<PAGE>
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.
11
<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
12
<PAGE>
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
13
<PAGE>
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.
14
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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: /s/Mark S. Casady /s/Maureen Kane
--------------------------------- --------------------------------
Mark S. Casady Title: Asst. Secretary
President
KEMPER SERVICE COMPANY ATTEST:
By: /s/Robert W. Ciarlelli /s/Walter R. Randall
--------------------------------- --------------------------------
TITLE: Senior Vice President Title: Asst. Secretary
------------------------------
17
<PAGE>
EXHIBIT B
---------
INSURANCE COVERAGE
------------------
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
18
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
<PAGE>
reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and
money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a
2
<PAGE>
certificate, letter or other instrument signed by an authorized officer
of the Fund or any other person authorized by the Fund's Board of
Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all
3
<PAGE>
other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper-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: /s/Mark S. Casady
---------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
---------------------
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
2
<PAGE>
and on behalf of the Fund by its representatives as such representatives and not
individually, and the obligations o the Fund thereunder are not binding upon any
of the trustees, officers or shareholders of the Fund individually but are
binding upon only the assets and property of the Fund.
8. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 7 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER EQUITY TRUST, on behalf of
Kemper-Dreman Financial Services Fund
By: /s/Mark S. Casady
----------------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: /s/James L. Greenawalt
----------------------------------
TITLE: President
--------------------------------
Dated: March 2, 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: /s/Mark S. Casady
-----------------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By: /s/James L. Greenawalt
-----------------------------------
TITLE: President
--------------------------------
Dated: March 2, 1998
4
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 Kemper-Dreman
Financial Services Fund dated January 19, 1999 in the Registration Statement
(Form N-1A) of Kemper Equity Trust and its incorporation by reference in the
related Prospectus and Statement of Additional Information of Kemper Equity
Funds/Value Style, filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 2 to the Registration Statement under the
Securities Act of 1933 (Registration No. 333-43815) and this Amendment No. 3 to
the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-08599).
ERNST & YOUNG LLP
Chicago, Illinois
January 29, 1999
Fund: Kemper Equity Trust (the "Fund")
-------------------
Series: Kemper-Dreman Financial Services Fund (the "Series")
-------------------------------------
Class: Class B (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including a majority of the Board members who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Fund: Kemper Equity Trust (the "Fund")
-------------------
Series: Kemper-Dreman Financial Services Fund (the "Series")
-------------------------------------
Class: Class C (the "Class")
-------
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including a majority of the Board members who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan
shall be held or made invalid by a court decision, rule or otherwise, the
remainder of this Plan shall not be affected thereby. Action shall be taken
separately for the Series or Class as the Act or the rules thereunder so
require.
(Amended and restated August 1, 1998)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052427
<NAME> KEMPER EQUITY TRUST
<SERIES>
<NUMBER> 01
<NAME> KEMPER-DREMAN FINANCIAL SERVICES FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> MAR-09-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 230,504
<INVESTMENTS-AT-VALUE> 225,010
<RECEIVABLES> 1,661
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,519
<TOTAL-LIABILITIES> 2,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,717
<SHARES-COMMON-STOCK> 11,211
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (244)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,494)
<NET-ASSETS> 224,161
<DIVIDEND-INCOME> 2,151
<INTEREST-INCOME> 141
<OTHER-INCOME> 0
<EXPENSES-NET> (2,106)
<NET-INVESTMENT-INCOME> 186
<REALIZED-GAINS-CURRENT> (248)
<APPREC-INCREASE-CURRENT> (5,494)
<NET-CHANGE-FROM-OPS> (5,556)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,095
<NUMBER-OF-SHARES-REDEEMED> (2,888)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 224,061
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,311
<AVERAGE-NET-ASSETS> 154,540
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052427
<NAME> KEMPER EQUITY TRUST
<SERIES>
<NUMBER> 02
<NAME> KEMPER-DREMAN FINANCIAL SERVICES FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> MAR-09-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 230,504
<INVESTMENTS-AT-VALUE> 225,010
<RECEIVABLES> 1,661
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,519
<TOTAL-LIABILITIES> 2,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,717
<SHARES-COMMON-STOCK> 10,389
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (244)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,494)
<NET-ASSETS> 224,161
<DIVIDEND-INCOME> 2,151
<INTEREST-INCOME> 141
<OTHER-INCOME> 0
<EXPENSES-NET> (2,106)
<NET-INVESTMENT-INCOME> 186
<REALIZED-GAINS-CURRENT> (248)
<APPREC-INCREASE-CURRENT> (5,494)
<NET-CHANGE-FROM-OPS> (5,556)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,393
<NUMBER-OF-SHARES-REDEEMED> (1,008)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 224,061
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,311
<AVERAGE-NET-ASSETS> 154,540
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052427
<NAME> KEMPER EQUITY TRUST
<SERIES>
<NUMBER> 03
<NAME> KEMPER-DREMAN FINANCIAL SERVICES FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> MAR-09-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 230,504
<INVESTMENTS-AT-VALUE> 225,010
<RECEIVABLES> 1,661
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,519
<TOTAL-LIABILITIES> 2,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,717
<SHARES-COMMON-STOCK> 1,699
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (244)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,494)
<NET-ASSETS> 224,161
<DIVIDEND-INCOME> 2,151
<INTEREST-INCOME> 141
<OTHER-INCOME> 0
<EXPENSES-NET> (2,106)
<NET-INVESTMENT-INCOME> 186
<REALIZED-GAINS-CURRENT> (248)
<APPREC-INCREASE-CURRENT> (5,494)
<NET-CHANGE-FROM-OPS> (5,556)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,951
<NUMBER-OF-SHARES-REDEEMED> (255)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 224,061
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,311
<AVERAGE-NET-ASSETS> 154,540
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 2.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
KEMPER MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi-Distribution
System Plan (each a "Fund" and collectively the "Funds") is an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. and/or Dreman Value
Management LLC serves as investment adviser and Kemper Distributors, Inc. serves
as principal underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services
agreement providing for a service fee at an annual rate of up to .25% of average
daily net assets;
WHEREAS, each Fund has established a Multi-Distribution System enabling
each Fund, as more fully reflected in its prospectus, to offer investors the
option of purchasing shares (a) with a front-end sales load (which may vary
among Funds) and a service fee ("Class A shares"); (b) without a front-end sales
load, but subject to a Contingent Deferred Sales Charge ("CDSC") (which may vary
among Funds), a Rule 12b-1 plan providing for a distribution fee, and a service
fee ("Class B shares"); (c) without a front-end sales load, but subject to a
CDSC (applicable to shares purchased on or after April 1, 1996 and which may
vary among Funds), a Rule 12b-1 Plan providing for a distribution fee, and a
service fee ("Class C shares"); and (d) for certain Funds, without a front-end
load, a CDSC, a distribution fee or a service fee ("Class I shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under
the 1940 Act, hereby adopts this Multi-Distribution System Plan as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as
<PAGE>
shareholder reports, prospectuses, and proxy statements to current shareholders
of a specific class; (ii) Securities and Exchange Commission registration fees
incurred by a specific class; (iii) litigation or other legal expenses relating
to a specific class; (iv) board member fees or expenses incurred as a result of
issues relating to a specific class; and (v) accounting expenses relating to a
specific class; (e) the voting rights related to any Rule 12b-1 Plan affecting a
specific class of shares; (f) conversion features; (g) exchange privileges; and
(h) class names or designations. Any additional incremental expenses not
specifically identified above that are subsequently identified and determined to
be properly applied to one class of shares of the Fund (or a series) shall be so
applied upon approval by a majority of the members of the Fund's board,
including a majority of the board members who are not interested persons of the
Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or series)
at the relative net asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares issued
in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall convert
to Class A shares seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991. Class B shares issued upon
reinvestment of income and capital gain dividends and other distributions will
be converted to Class A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of another Fund, or with
money market fund shares
2
<PAGE>
as described in the applicable prospectus. Exchanges will comply with all
applicable provisions of Rule 11a-3 under the 1940 Act. For purposes of
calculating the time period remaining on the conversion of Class B shares to
Class A shares, Class B shares received on exchange retain their original
purchase date.
6. Dividends paid by the Fund (or series) as to each class of its
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount;
except that any distribution fees, service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Article III, Section 26,
of the Conduct Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's board, including a majority of the board members
who are not interested persons of the Fund.
Any open-end investment company may establish a Multi-Distribution
System and adopt this Multi-Distribution System Plan by approval of a majority
of the members of any such company's governing board, including a majority of
the board members who are not interested persons of such company.
For use on or after: April 1, 1996
3
