Filed electronically with the Securities and Exchange Commission
on November 25, 1998
File No. 811-08983
File No. 333-62677
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
------
Post-Effective Amendment No.
------
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
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Kemper Income Trust
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(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza Street, Chicago, IL 60606
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
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Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
-----------------------------------
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.
Title of securities being registered: Shares of Beneficial Interest, $.01 par
value per share.
<PAGE>
KEMPER INCOME TRUST
Kemper High Yield Fund II
CROSS-REFERENCE SHEET
Items Required by Form N-1A
---------------------------
PART A
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<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis SUMMARY
SUMMARY OF EXPENSES
3. Condensed Financial NOT APPLICABLE
Information
4. General Description of SUMMARY
Registrant INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
CAPITAL STRUCTURE
5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other SUMMARY
Securities INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
DIVIDENDS AND TAXES
PURCHASE OF SHARES
7. Purchase of Securities Being SUMMARY
Offered PURCHASE OF SHARES
INVESTMENT MANAGER AND UNDERWRITER
8. Redemption or Repurchase SUMMARY
REDEMPTION OR REPURCHASE OF SHARES
9. Pending Legal Proceedings NOT APPLICABLE
Cross Refererence - Page 1
<PAGE>
KEMPER INCOME TRUST
Kemper High Yield Fund II
(continued)
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History NOT APPLICABLE
13. Investment Objectives and INVESTMENT RESTRICTIONS
Policies INVESTMENT POLICIES AND TECHNIQUES
14. Management of the Fund OFFICERS AND TRUSTEES
REMUNERATION
15. Control Persons and Principal OFFICERS AND TRUSTEES
Holders of Securities
16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
18. Capital Stock and Other INVESTMENT MANAGER AND UNDERWRITER
Securities
19. Purchase, Redemption and PURCHASE AND REDEMPTION OF SHARES
Pricing of Securities Being
Offered
20. Tax Status DIVIDENDS AND TAXES
21. Underwriters INVESTMENT MANAGER AND UNDERWRITER
22. Calculation of Performance Data PERFORMANCE
23. Financial Statements NOT APPLICABLE
</TABLE>
Cross Refererence - Page 2
<PAGE>
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
November 30, 1998
Prospectus
Kemper Income Funds
Kemper High Yield Fund II
[KEMPER LOGO]
<PAGE>
Table of Contents
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Summary 2
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Summary of Expenses 4
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Investment Objectives, Policies and Risk Factors 6
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Investment Manager and Underwriter 23
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Dividends and Taxes 28
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Net Asset Value 30
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Purchase of Shares 31
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Redemption or Repurchase of Shares 39
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Special Features 45
- --------------------------------------------------------------------------------
Performance 51
- --------------------------------------------------------------------------------
Capital Structure 53
- --------------------------------------------------------------------------------
<PAGE>
[KEMPER LOGO]
Kemper High Yield Fund II
PROSPECTUS NOVEMBER 30, 1998
KEMPER HIGH YIELD FUND II
222 South Riverside Plaza, Chicago, Illinois 60606, 1-800-621-1048.
This prospectus contains information about Kemper High Yield Fund II (the
"Fund") that you should know before investing and should be retained for future
reference. A Statement of Additional Information dated November 30, 1998, which
is incorporated herein by reference, has been filed with the Securities and
Exchange Commission (the "SEC") and is available along with other related
materials on the SEC's Internet Web site (http//www.sec.gov) It is available
upon request without charge from the Fund at the address or telephone number on
this cover or the firm from which this prospectus was obtained.
The Fund is a series of Kemper Income Trust (the "Trust"), a registered open-end
management investment company managed by Scudder Kemper Investments, Inc.
The Fund invests primarily in lower rated bonds, commonly referred to as "junk
bonds." Investments of this type are subject to a greater risk of loss of
principal and interest than investments in higher rated securities. Purchasers
should carefully assess the risks associated with an investment in the Fund.
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
Investment Objectives. Kemper High Yield Fund II (the "Fund") seeks the highest
level of current income obtainable from a professionally managed, diversified
portfolio of fixed income securities that the Fund's investment manager
considers consistent with reasonable risk. As a secondary objective, the Fund
will seek capital gain where consistent with its primary objective.
The Fund may engage in options and financial futures and may invest a portion of
its assets in foreign securities and engage in related foreign currency
transactions. See "Investment Objectives, Policies and Risk Factors."
Risk Factors. There is no assurance that the investment objectives of the Fund
will be achieved and investment in the Fund includes risks that vary in kind and
degree. The returns and net asset value of the Fund will fluctuate. Investors
should note that investments in high yield securities entail relatively greater
risk of loss of income and principal than investments in higher rated securities
and market prices of high yield securities may fluctuate more than market prices
of higher rated securities. Foreign investments by the Fund involve risk and
opportunity considerations not typically associated with investing in U.S.
companies. The U.S. Dollar value of a foreign security tends to decrease when
the value of the U.S. Dollar rises against the foreign currency in which the
security is denominated and tends to increase when the value of the U.S. Dollar
falls against such currency. Thus, the U.S. Dollar value of foreign securities
in the Fund's portfolio, and the Fund's net asset value, may change in response
to changes in currency exchange rates even though the value of the foreign
securities in local currency terms may not have changed. The Fund's investments
in foreign securities may be in developed countries or in countries considered
by the Fund's investment manager to be developing or "emerging" markets, which
involve exposure to economic structures that are generally less diverse and
mature than in the United States, and to political systems that may be less
stable. There are special risks associated with options, financial futures,
foreign currency and other derivative transactions and there is no assurance
that use of these investment techniques will be successful. The Fund may borrow
money for leveraging purposes, which can exaggerate the effect on its net asset
value of any increase or decrease in the market value of the Fund's portfolio.
See "Investment Objectives, Policies and Risk Factors."
2
<PAGE>
Purchases and Redemptions. The Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares..... Offered at net asset value plus a maximum sales charge of
4.5% of the offering price. Reduced sales charges apply to
purchases of $100,000 or more. Class A shares purchased at
net asset value under the Large Order NAV Purchase Privilege
may be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent
deferred sales charge if redeemed during the second year of
purchase.
Class B Shares..... Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge that
declines from 4% to zero on certain redemptions made within
six years of purchase. Class B shares automatically convert
into Class A shares (which have lower ongoing expenses) six
years after purchase.
Class C Shares..... Offered at net asset value without an initial sales charge,
but subject to a Rule 12b-1 distribution fee and a 1%
contingent deferred sales charge on redemptions made within
one year of purchase. Class C shares do not convert into
another class.
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment is $1,000 and each investment
thereafter must be of at least $100. Shares are redeemable at net asset value,
which may be more or less than original cost, subject to any applicable
contingent deferred sales charge. See "Purchase of Shares" and "Redemption or
Repurchase of Shares."
Investment Manager and Underwriter. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for the Fund. The Fund pays the Adviser
an investment management fee, payable monthly, based upon the average daily net
assets of the Fund at an annual rate ranging from 0.65% of the first $250
million of average daily net assets to 0.49% of average daily net assets over
$12.5 billion. The fee is graduated so that increases in the Fund's net assets
may result in a lower annual fee rate and decreases in the Fund's net assets may
result in a higher annual fee rate. Kemper Distributors, Inc. ("KDI"), a wholly
owned subsidiary of the Adviser, is principal underwriter and administrator for
the Fund. For Class B shares and Class C shares, KDI receives a Rule 12b-1
distribution fee of 0.75 of 1% of average daily net assets. KDI also receives
the amount of any contingent deferred sales charges paid on the redemption of
shares. Administrative services are provided to shareholders under
administrative services agreements with KDI. The Fund pays an administrative
services fee at the annual rate of up to 0.25% of average daily net assets of
each class of the Fund, which KDI pays to various broker-dealer firms and other
service or administrative firms. See "Investment Manager and Underwriter."
3
<PAGE>
Dividends. The Fund normally distributes monthly dividends of net investment
income and distributes any net realized capital gains at least annually. Income
and capital gain dividends of the Fund are automatically reinvested in
additional shares of the same class of the Fund, without a sales charge, unless
the shareholder makes a different election. See "Dividends and Taxes."
SUMMARY OF EXPENSES
Shareholder Transaction Class A Class B Class C
Expenses (1) Shares Shares Shares
------ ------ ------
Maximum Sales Charge on Purchases 4.5%(2) None None
(as a percentage of offering price)
Maximum Sales Charge on None None None
Reinvested Dividends
Redemption Fees None None None
Exchange Fee None None None
Maximum Contingent Deferred Sales Charge None(3) 4%(4) 1%(5)
(as a percentage of redemption proceeds)
Annual Fund Operating Expenses* Class A Class B Class C
(estimated as a percentage of average Shares Shares Shares
net assets) ------- ------- -------
Management Fees 0.65% 0.65% 0.65%
12b-1 Fees (6) (7) None 0.75% 0.75%
Other Expenses 0.62% 0.70% 0.75%
----- ----- -----
Total Fund Operating Expenses 1.27% 2.10% 2.15%
===== ===== =====
- -----------
* For the first three months of operations, and subject to the qualification
described below, the Adviser has agreed to waive its management fee and
reimburse operating expenses, to the extent necessary to limit Total Fund
Operating Expenses during the three-month period for Class A Shares, Class
B Shares and Class C Shares to 0.25%, 1.00% and 1.00%, respectively;
provided, however, transfer agency fees and related out-of-pocket expenses
will not be subject to this waiver and reimbursement. Therefore, if
transfer agency fees and related out-of-pocket expenses were to exceed the
limits upon Total Fund Operating Expenses for a particular class during the
three-month period of the waiver and reimbursement (contrary to current
estimates), such expenses would be charged to the class in the actual
amount incurred and Total Fund Operating Expenses for the class would
exceed the limits described above during the first three-month period. The
table above does not reflect the effect of this waiver and reimbursement.
The Fund commenced operations on November 30, 1998, and Management Fees and
Other Expenses are estimated for the Fund's initial fiscal year. After
giving effect to such waiver and reimbursement, estimated management fees
would be 0.45% for each class, 12b-1 fees would be None, 0.67% and 0.66%,
for Class A Shares, Class B Shares and Class C Shares, respectively, "Other
Expenses" would be 0.51%, 0.65% and 0.70% for Class A Shares, Class B
Shares and Class C Shares, respectively, and total fund operating expenses
would be 0.96%, 1.77% and 1.81% for Class A Shares, Class B Shares and
Class C Shares, respectively. The foregoing figures are blended estimates
reflecting the effect of the waiver and reimbursement for the first three
months and full estimated expenses for the next seven months, being the
balance of the Fund's first fiscal year.
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. The table does not include the $9.00 quarterly small
account fee. See "Redemptions or Repurchases of Shares."
4
<PAGE>
(2) Reduced sales charges apply to purchases of $100,000 or more. See "Purchase
of Shares -- Initial Sales Charge Alternative -- Class A Shares."
(3) The redemption of Class A Shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
See "Purchase of Shares -- Initial Sales Charge Alternative -- Class A
Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% during the sixth year.
(5) The Contingent Deferred Sales Charge on Class C Shares applies to
redemptions during the first year after purchase.
(6) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that it is unlikely because of
the automatic conversion feature described under "Purchase of Shares --
Deferred Sales Charge Alternative -- Class B Shares."
(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example*
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
1 year 3 years
------ -------
Class A Shares (8)
Based on the estimated level of total operating expenses $ 57 $ 83
listed above, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each time period:
Class B Shares (9)
Based on the estimated level of total operating expenses $ 61 $ 96
listed above, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each time period:
You would pay the following expenses on the same $ 21 $ 66
investment, assuming no redemption:
Class C Shares (10)
Based on the estimated level of total operating expenses $ 32 $ 67
listed above, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each time period:
You would pay the following expenses on the same $ 22 $ 67
investment, assuming no redemption:
- -----------
* Based on Total Fund Operating Expenses without the effect of fee waiver.
(See Annual Fund Operating Expenses.)
(8) Assumes deduction of the maximum 4.5% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the time
of redemption.
(9) Assumes that the shareholder was an owner of shares on the first day of the
first year and the contingent deferred sales charge was applied as follows:
1 year (4%) and 3 years (3%).
5
<PAGE>
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge of 1.00% was applied during
the first year.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Fund commenced operations on November 30, 1998, thus "Management Fees" and
"Other Expenses" are estimates for the fiscal year ending September 30, 1999.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objectives and
policies. The Fund's returns and net asset value will fluctuate and there is no
assurance that the Fund will achieve its objective.
The primary objective of the Fund is to achieve the highest level of current
income obtainable from a professionally managed, diversified portfolio of fixed
income securities that the investment manager considers consistent with
reasonable risk. The Fund will invest primarily in fixed income securities and,
under normal market conditions, the Fund will invest at least 65% of its total
assets in high yield, fixed income securities. The Fund anticipates that under
normal conditions approximately 90 to 100% of its total assets will be held in
high yield, fixed income securities. As a secondary objective, the Fund will
seek capital gain where consistent with its primary objective.
The high yield, fixed income securities (debt and preferred stock issues,
including convertibles and assignments or participations in loans) in which the
Fund intends to invest are commonly referred to as "junk bonds" and normally
offer a current yield or yield to maturity that is significantly higher than the
yield available from securities rated in the four highest categories assigned by
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"). The characteristics of the securities in the Fund's portfolio, such
as the maturity and the type of issuer, will affect yields and yield
differentials, which vary over time. The actual yield realized by the investor
is subject to, among other things, the Fund's expenses and the investor's
transaction costs.
There are market and investment risks with any security and the value of an
investment in the Fund may fluctuate over time. In seeking to achieve its
investment objectives, the Fund will invest in fixed income securities based on
the investment manager's analysis without relying on published ratings. The Fund
will invest in a particular security if in the view of the investment manager
the increased yield offered, regardless of published ratings, is sufficient to
compensate for a reasonable element of assumed risk. Since investments will be
6
<PAGE>
based upon the investment manager's analysis rather than upon published ratings,
achievement of the Fund's goals may depend more upon the abilities of the
investment manager than would otherwise be the case. Investment in high yield
securities, while providing greater income and opportunity for gain than
investment in higher rated securities, entails relatively greater risk of loss
of income and principal. See "Special Risk Factors -- High Yield (High Risk)
Bonds" below and "Appendix -- Ratings of Investments" in the Statement of
Additional Information.
As a secondary objective, the Fund will seek capital gain where consistent with
its primary objective. However, the Fund intends to hold portfolio securities to
maturity unless yields on alternative investments, based on current market
prices, are more attractive than those on securities held in the Fund's
portfolio or unless the investment manager determines defensive strategies
should be implemented.
The Fund may invest up to 20% of its total assets in common stocks, rights or
other equity securities generally of companies that issue high yield, fixed
income securities.
The Fund may borrow money for leveraging purposes, which can exaggerate the
effect on its net asset value of any increase or decrease in the market value of
the Fund's portfolio. Money borrowed for leveraging purposes will be limited to
20% of the total assets of the Fund, including the amount borrowed. These
borrowings are subject to interest costs that may or may not be recovered by the
return received on the securities purchased. Under certain circumstances, the
interest costs may exceed the return received on the securities purchased.
The Fund may invest all or a portion of its assets in money market instruments
such as obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the three highest grades by Moody's or S&P;
commercial paper rated within the two highest grades by either of such rating
services; bank certificates of deposit or bankers' acceptances of domestic or
Canadian chartered banks having total assets in excess of $1 billion; and any of
the foregoing investments subject to short-term repurchase agreements (an
instrument under which the purchaser acquires ownership of the underlying
obligation and the seller agrees, at the time of sale, to repurchase the
obligation at a mutually agreed upon time and price). The Fund may also purchase
and sell options on securities, index options, financial futures contracts and
options on financial futures contracts in connection with attempts to hedge its
portfolio investments and not for speculation; and it may purchase foreign
securities and engage in foreign currency transactions. See "Special Risk
Factors -- Foreign Securities" and "Additional Investment Information" below.
Special Risk Factors -- High Yield (High Risk) Bonds. As stated above, the Fund
invests a substantial portion of its assets in fixed income securities offering
high current income. Such high yield (high risk), fixed income securities
ordinarily will be in the lower rating categories (securities rated below BBB by
S&P or below Baa by Moody's) of nationally recognized statistical rating
7
<PAGE>
organizations or will be non-rated and considered by the Adviser to be of
equivalent quality ("low rated securities). Lower rated securities, which are
commonly referred to as "junk bonds," have widely varying characteristics and
qualities. These lower rated fixed income securities are considered, on balance,
to be 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.
Accordingly, an investment in the Fund may not constitute a complete investment
program and may not be appropriate for all investors.
The market values of such securities tend to reflect individual corporate
developments of the particular issuer 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 are more sensitive to
economic conditions than are higher rated securities or securities which are
unrated but considered by the Adviser to be of equivalent quality to higher
rated securities ("higher rated securities"). Adverse publicity and investor
perceptions regarding lower rated securities, whether or not based on
fundamental analysis, may depress the prices for such securities. These and
other factors adversely affecting the market value of high yield securities may
adversely affect the Fund's net asset value.
The investment philosophy of the Fund with respect to high yield (high risk)
bonds is based upon the premise that over the long term a broadly diversified
portfolio of high yield fixed income securities should, even taking into account
possible losses, provide a higher net return than that achievable on a portfolio
of higher rated securities. The Fund seeks to achieve the highest yields
possible while reducing relative risk through (a) broad diversification, (b)
credit analysis by the Adviser of the issuers in which the Fund invests, (c)
purchasing high yield securities at discounts from par or stated value when
practicable and (d) monitoring and seeking to anticipate changes and trends in
the economy and financial markets that might affect the prices of portfolio
securities. The Adviser's judgment as to the "reasonableness" of the risk
involved in any particular investment will be a function of the Adviser's
experience in managing fixed income investments and its evaluation of general
economic and financial conditions, a specific issuer's business and method of
management, cash flow, earnings coverage of interest and dividends, ability to
operate under adverse economic conditions, and fair market value of assets, and
of such other considerations as the Adviser may deem appropriate. The investment
manager, while seeking maximum current yield, will monitor current corporate
developments with respect to portfolio securities and potential investments and
to broad trends in the economy. In some circumstances, defensive strategies may
be implemented to preserve or enhance capital even at the expense of current
yield. Defensive strategies, which may be used singly or in any combination, may
include, but are not limited to, investments in discount securities or
investments in money market instruments, as well as investments in futures and
options strategies.
8
<PAGE>
High yield (high risk) securities frequently are issued by corporations in the
growth stages of their developments. 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, issuers of the risk
associated with acquiring the securities of such issuers generally is greater
than is the case with higher rated securities. For example, during an economic
downturn or recession, highly leveraged issuers of high yield securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, 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 yield securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. Although some risk is
inherent in all securities ownership, holders of fixed income securities have a
claim on the assets of the issuer that is superior to that of 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.
The Fund may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and the Fund's ability to dispose of particular issues and may
also make it more difficult for the Fund to obtain accurate market quotations
for purposes of valuing the Fund's portfolio assets. Market quotations generally
are available on many high yield issues only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices from
actual sales.
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 having 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, with zero coupon, pay-in-kind or deferred interest bonds, 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.
9
<PAGE>
Current federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds) to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, the
Fund will be required to distribute income accrued with respect to these
securities and may be required to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Additional information concerning high yield (high risk) securities appears
under "Appendix -- Portfolio Composition of High Yield Bonds" below and
"Appendix -- Ratings of Investments" in the Statement of Additional Information.
Special Risk Factors -- Foreign Securities. The Fund has the discretion to
invest a portion of its assets in foreign securities that are traded principally
in securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to 25%
of total assets. The Fund may also invest without limit in U.S. Dollar
denominated American Depository Receipts ("ADRs"), which are bought and sold in
the United States and are not subject to the preceding limitation. In connection
with its foreign securities investments, the Fund may, to a limited extent,
engage in foreign currency exchange, options and futures transactions as a hedge
and not for speculation. See "Additional Investment Information -- Options and
Financial Futures Transactions and Foreign Currency Transactions."
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
Foreign securities may be subject to foreign governmental taxes that reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possible imposition of exchange
controls. The prices of such securities may be more volatile than those of
domestic securities and the markets for such securities may be less liquid. In
addition, there may be less publicly available information about foreign issuers
than about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
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expropriation or diplomatic developments that could affect investment in these
countries.
Emerging Markets. The Fund's investments in foreign securities may be in
developed countries or in countries considered by the Fund's investment manager
to be developing or "emerging" markets, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A developing or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, United Kingdom, New Zealand, Hong Kong, Singapore and most Western
European countries. Currently, investing in many emerging markets may not be
desirable or feasible because of the lack of adequate custody arrangements for
the Fund's assets, overly burdensome repatriation and similar restrictions, the
lack of organized and liquid securities markets, unacceptable political risks or
other reasons. As opportunities to invest in securities in emerging markets
develop, the Fund may expand and further broaden the group of emerging markets
in which it invests. In the past, markets of developing or emerging market
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
The investment manager believes that these characteristics can be expected to
continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
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in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Certain
emerging markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
Fixed Income. Since most foreign fixed income securities are not rated, the Fund
will invest in foreign fixed income securities based on the Adviser's analysis
without relying on published ratings. Since such investments will be based upon
the Adviser's analysis rather than upon published ratings, achievement of the
Fund's goals may depend more upon the abilities of the Adviser than would
otherwise be the case.
The value of the foreign fixed income securities held by the Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which the Fund's investments in fixed income securities are
denominated with respect
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to the U.S. Dollar. The extent of the fluctuation will depend on various
factors, such as the average maturity of the Fund's investments in foreign fixed
income securities, and the extent to which the Fund hedges its interest rate,
credit and currency exchange rate risks. Many of the foreign fixed income
obligations in which the Fund will invest will have long maturities. A longer
average maturity generally is associated with a higher level of volatility in
the market value of such securities in response to changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and the Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of the Fund. A significant
portion of the sovereign debt in which the Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet
conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
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<PAGE>
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprises's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
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. The Fund may also
invest in securities of foreign issuers in the form of European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs") which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European and other foreign securities markets. EDRs and
GDRs are not necessarily denominated in the currency of the underlying security.
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Additional Investment Information. The Fund will not normally engage in the
trading of securities for the purpose of realizing short-term profits, but will
adjust its portfolio as considered advisable in view of prevailing or
anticipated market conditions and its investment objective. Accordingly, the
Fund may sell fixed income securities in anticipation of a rise in interest
rates and purchase such securities for inclusion in its portfolio in
anticipation of a decline in interest rates. Frequency of portfolio turnover
will not be a limiting factor should the Adviser deem it desirable to purchase
or sell securities. It is anticipated that, under normal circumstances, the
portfolio turnover rate for the Fund will not exceed 100% during its initial
fiscal year. Higher portfolio turnover may result in the realization of greater
net short-term capital gains. See "Dividends and Taxes" in the Statement of
Additional Information.
The Fund may take full advantage of the entire range of maturities of fixed
income securities and may adjust the average maturity of its portfolio from time
to time, depending upon its assessment of relative yields on securities of
different maturities and its expectations of future changes in interest rates.
Thus, the average maturity of the Fund's portfolio may be relatively short
(under 5 years, for example) at some times and relatively long (over 10 years,
for example) at other times. Generally, since shorter term debt securities tend
to be more stable than longer term debt securities, the portfolio's average
maturity will be shorter when interest rates are expected to rise and longer
when interest rates are expected to fall.
The Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and which cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940 ("1940 Act"), this means the
lesser of the vote of (a) 67% of the shares of a 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. Unless otherwise
indicated, the investment objectives and policies of the Fund are not
fundamental and can be changed by the Board of Trustees of the Trust without a
shareholder vote.
As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law. In addition, as a matter of fundamental policy, the
Fund may not make loans except through the lending of portfolio securities, the
purchase of debt instruments or interests in indebtedness or through repurchase
agreements.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
The Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities. See "Investment Policies and Techniques -- Over-the-Counter
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Options" in the Statement of Additional Information for a description of the
extent to which over-the-counter traded options are in effect considered
illiquid for purposes of the Fund's limit on illiquid securities. The Fund may
invest in securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933. This rule permits otherwise restricted securities to be
sold to certain institutional buyers, such as the Fund. Such securities may be
illiquid and subject to the Fund's limitation on illiquid securities. A "Rule
144A" security may be treated as liquid, however, if so determined pursuant to
procedures adopted by the Board of Trustees. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A securities.
Common Stocks. Subject to its investment objectives and policies, the Fund may
invest in common stocks. Common stock is issued by companies to raise cash for
business purposes and represents a proportionate interest in the issuing
companies. Therefore, the Fund participates in the success or failure of any
company in which it holds stock. The market values of common stock can fluctuate
significantly, reflecting the business performance of the issuing company,
investor perception and general economic or financial market movements. Smaller
companies are especially sensitive to these factors. An investment in common
stock entails greater risk of becoming valueless than does an investment in
fixed-income securities. Despite the risk of price volatility, however, common
stock also offers the greatest potential for long-term gain on investment,
compared to other classes of financial assets such as bonds or cash equivalents.
Convertible Securities. Subject to its investment objectives and policies, the
Fund may invest in convertible securities which may offer higher income than the
common stocks into which they are convertible. The convertible securities in
which the Fund may invest include fixed-income or zero coupon debt securities,
which may be converted or exchanged at a stated or determinable exchange ratio
into underlying shares of common stock. Prior to their conversion, convertible
securities may have characteristics similar to both nonconvertible debt
securities and equity securities. While convertible securities generally offer
lower yields than nonconvertible debt securities of similar quality, their
prices may reflect changes in the value of the underlying common stock.
Convertible securities generally entail less credit risk than the issuer's
common stock.
Options and Financial Futures Transactions. The Fund may deal in options on
securities and securities indexes, which options may be listed for trading on a
national securities exchange or traded over-the-counter. In connection with its
foreign securities investments, the Fund may also purchase and sell foreign
currency options.
The Fund may write (sell) covered call and secured put options on up to 25% of
its net assets. The Fund may purchase put and call options provided that no more
than 5% of its net assets may be invested in premiums on such options.
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A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price during or at the end of the option period. The
writer of a covered call owns securities or other assets that are acceptable for
escrow and the writer of a secured put invests an amount not less than the
exercise price in eligible securities or other assets to the extent that it is
obligated as a writer. If a call written by the Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying security or other asset over the exercise price plus the premium
received. In writing puts, there is a risk that the Fund may be required to take
delivery of the underlying security or other asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
the Fund may experience material losses. However, in writing options the premium
is paid in advance by the dealer. OTC options are available for a greater
variety of securities and other assets, and a wider range of expiration dates
and exercise prices, than for exchange traded options.
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. The Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with its foreign securities investments, the Fund may also engage in
foreign currency financial futures transactions. The Fund will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund.
The Fund may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, if the Fund owned
long-term bonds and interest rates were expected to rise, it could sell
financial futures contracts. If interest rates did increase, the value of the
bonds in the Fund would decline, but this decline would be offset in whole or in
part by an increase in the value of the Fund's futures contracts. If, on the
other hand, long-term interest rates were expected to decline, the Fund could
hold short-term debt securities and benefit from the income earned by holding
such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without
17
<PAGE>
actually buying them. The futures contracts and short-term debt securities could
then be liquidated and the cash proceeds used to buy long-term bonds.
Futures contracts entail risks. If the Adviser's judgment about the general
direction of interest rates, markets or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into. There
may be an imperfect correlation between movements in prices of futures contracts
and portfolio assets being hedged. In addition, the market prices of futures
contracts may be affected by certain factors. For example, if participants in
the futures market elect to close out their contracts rather than meet margin
requirements, distortions in the normal relationship between the underlying
assets and futures market could result. Price distortions also could result if
investors in futures contracts decide to make or take delivery of underlying
securities or other assets rather than engage in closing transactions because of
the resultant reduction in the liquidity of the futures market. In addition,
because, from the point of view of speculators, margin requirements in the
futures market are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities or other assets and movements in the prices of futures
contracts, a correct forecast of market trends by the investment manager still
may not result in a successful hedging transaction. If any of these events
should occur, the Fund could lose money on the financial futures contracts and
also on the value of its portfolio assets. The costs incurred in connection with
futures transactions could reduce the Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
Foreign Currency Transactions. The Fund may invest a limited portion of its
assets in securities denominated in foreign currencies. The Fund may engage in
foreign currency transactions in connection with their investments in foreign
securities but will not speculate in foreign currency exchange.
The value of the foreign securities investments of the Fund measured in U.S.
Dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange
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market, or through forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell 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. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains that might result from a positive
change in such currency relationships. The Fund may also hedge its foreign
currency exchange rate risk by engaging in foreign currency financial futures
and options transactions.
When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. Dollar, it may enter into a
forward contract to sell an amount of foreign currency approximating the value
of some or all of the Fund's securities denominated in such foreign currency.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
The Fund will not enter into forward contracts or maintain a net exposure in
such contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. The Fund does not intend to enter into forward
contracts for the purchase of a foreign currency if they would have more than
15% of the value of its total assets committed to such contracts. The Fund
segregates cash or liquid securities to the extent required by applicable
regulation in connection with forward foreign currency exchange contracts
entered into for the purchase of a foreign currency. The Fund generally does not
enter into a forward contract with a term longer than one year.
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Derivatives. In addition to options and financial futures transactions,
consistent with its objective, the Fund may invest in a broad array of financial
instruments and securities in which the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate or a foreign currency ("derivatives").
Derivatives are most often used to manage investment risk, to increase or
decrease exposure to an asset class or benchmark (as a hedge or to enhance
return), or to create an investment position indirectly (often because it is
more efficient or less costly than direct investment). The types of derivatives
used by the Fund and the techniques employed by the Adviser may change over time
as new derivatives and strategies are developed or regulatory changes occur.
Special Risk Factors -- Options, Futures, Foreign Currencies and other
Derivatives. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures or other derivatives contracts and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivatives intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; and (e) the possible non-performance of
the counter-party to the derivative contract.
Delayed Delivery Transactions. The Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. The value of fixed yield securities
to be delivered in the future will fluctuate as interest rates vary. Because the
Fund is required to set aside cash or other liquid securities to satisfy its
commitments to purchase when-issued or delayed delivery securities, flexibility
to manage the Fund's investments may be limited if commitments to purchase
when-issued or delayed delivery securities were to exceed 25% of the value of
its assets.
To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies. The Fund reserves the right to
sell these securities before the settlement date if deemed advisable.
In when-issued or delayed delivery transactions, delivery of the securities
occurs beyond normal settlement periods, but the Fund would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund purchases securities on a when-issued or delayed delivery basis,
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<PAGE>
it immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued or delayed
delivery basis may result in a loss or missed opportunity to make an alternative
investment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which its
total assets, including the value of when-issued and delayed delivery securities
it holds, exceed its net assets.
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.
Borrowings. The Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. Although the principal of the
Fund's borrowings will be fixed, the Fund's assets may change in value during
the time a borrowing is outstanding, thus increasing exposure to capital risk.
The Fund may also borrow money for leverage purposes, which can exaggerate the
effect on its net asset value for any increase or decrease in the market value
of the Fund's portfolio. These borrowings are subject to interest costs which
may or may not be recovered by the return received on the securities purchased.
Under certain circumstances, the interest costs may exceed the return received
on the securities purchased.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or other liquid securities) equal to no
less than the market value, determined daily, of the securities loaned. The Fund
will receive amounts equal to dividends or interest on the securities loaned.
The Fund will also earn income for having made the loan. Any cash collateral
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<PAGE>
pursuant to these loans will be invested in short-term money market instruments.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
investment manager to be of good standing, and when the investment manager
believes the potential earnings to justify the attendant risk.
Collateralized Obligations. Subject to its investment objective and policies,
the Fund may purchase collateralized obligations, including interest only ("IO")
and principal only ("PO") securities. A collateralized obligation is a debt
security issued by a corporation, trust or custodian, or by a U.S. Government
agency or instrumentality, that is collateralized by a portfolio or pool of
mortgages, Mortgage-Backed Securities, U.S. Government Securities or other
assets. The issuer's obligation to make interest and principal payments is
secured by the underlying pool or portfolio of securities. Collateralized
obligations issued or guaranteed by a U.S. Government agency or instrumentality,
such as the Federal Home Loan Mortgage Corporation, are considered to be U.S.
Government Securities for purposes of this prospectus. Privately-issued
collateralized obligations collateralized by a portfolio of U.S. Government
Securities are not direct obligations of the U.S. Government or any of its
agencies or instrumentalities and are not considered U.S. Government Securities
for purposes of this prospectus. A variety of types of collateralized
obligations are available currently and others may become available in the
future.
Since the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Classes
with shorter maturities may have lower volatility and lower yield while those
with longer maturities may have higher volatility and higher yield. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment. With respect to interest
only and principal only securities, an investor has the option to select from a
pool of underlying collateral the portion of the cash flows that most closely
corresponds to the investor's forecast of interest rate movements. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor. The prices if certain collateralized obligations, depending on their
structure and the rate of prepayments, can be volatile. Some collateralized
obligations may also not be as liquid as other securities.
The Fund may invest in collateralized obligations whose yield floats inversely
against a specified index rate. These "inverse floaters" are more volatile than
conventional fixed or floating rate collateralized obligations and the yield
thereon, as well as the value thereof, will fluctuate in inverse proportion to
changes in the index upon which interest rate adjustments are based. As a
result, the yield on an inverse floater will generally increase when market
yields (as reflected by the index) decrease and decrease when market yields
increase. The
22
<PAGE>
extent of the volatility of inverse floaters depends on the extent of
anticipated changes in market rates of interest. Generally, inverse floaters
provide for interest rate adjustments based upon a multiple of the specified
interest index, which further increases their volatility. The degree of
additional volatility will be directly proportional to the size of the multiple
used in determining interest rate adjustments.
Additional information concerning collateralized obligations is contained in the
Statement of Additional Information under "Investment Policies and Techniques --
Collateralized Obligations."
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), 345 Park Avenue, New York, New York, is the investment manager of
the Fund and provides the Fund with continuous professional investment
supervision. The Adviser has been engaged in the management of investment funds
for more than seventy years with more than $230 billion in assets under
management.
Scudder Kemper is an indirect subsidiary of Zurich Financial Services, Inc., a
newly formed global insurance and financial services company. Zurich Financial
Services, Inc. owns approximately 70% of Scudder Kemper, with the balance owned
by Scudder Kemper's officers and employees.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. The Adviser provides professional investment supervision.
The investment management agreement provides that Scudder Kemper Investments,
Inc. shall act as the Fund's investment adviser, manage its investments and
provide it with various services and facilities.
Michael A. McNamara and Harry E. Resis, Jr. are the co-lead portfolio managers
of the Fund. Daniel J. Doyle is also a portfolio manager of the Fund. Mr.
McNamara joined the Adviser in February 1972 and is a Senior Vice President of
the Adviser and a Vice President of the Fund. He received a B.S. in Business
Administration from the University of Missouri, St. Louis, Missouri, and an
M.B.A. in Finance from Loyola University, Chicago, Illinois. Mr. Resis joined
the Adviser in June 1988 and is currently a Senior Vice President of the Adviser
and a Vice President of the Fund. He received a B.A. in Finance from Michigan
State University, East Lansing, Michigan. Mr. Doyle joined the Adviser in
February 1986 and is a Vice President of the Adviser and a Vice President of the
Fund. He received a B.S. in Finance from Northern Illinois University, Dekalb,
Illinois and an M.B.A in Finance from the University of Chicago, Chicago,
Illinois. Mr. Doyle is a Chartered Financial Analyst.
The Fund pays the Adviser investment management fees, payable monthly, at the
annual rates shown below.
Average Daily Net Assets High Yield Fund II
- ------------------------ ------------------
$0 - $250 million 0.65%
$250 million - $1 billion 0.62%
23
<PAGE>
Average Daily Net Assets High Yield Fund II
- ------------------------ ------------------
$1 billion - $2.5 billion 0.60%
$2.5 billion - $5 billion 0.58%
$5 billion - $7.5 billion 0.55%
$7.5 billion - $10 billion 0.53%
$10 billion - $12.5 billion 0.51%
Over $12.5 billion 0.49%
Fund Accounting Agent. Scudder Fund Accounting ("SFAC"), a subsidiary of the
Adviser, is responsible for determining the net asset value per share of the
Fund and maintaining all accounting records related thereto.
Year 2000 Readiness. Like other mutual funds and financial and business
organizations worldwide a Fund could be adversely affected if computer systems
on which a Fund relies, which primarily include those used by Scudder Kemper,
its affiliates or other service providers, are unable to process correctly
date-related information on and after January 1, 2000. This risk is commonly
called the Year 2000 Issue. Failure to address successfully the Year 2000 Issue
could result in interruptions to and other material adverse effects on a Fund's
business and operations. Scudder Kemper had commenced a review of the Year 2000
Issue as it may affect a Fund and is taking steps it believes are reasonably
designed to address the Year 2000 Issue, although there can be no assurances
that these steps will be sufficient. In addition, there can be no assurances
that the Year 2000 Issue will not have an adverse effect on the companies whose
securities are held by a Fund or on global markets or economies generally.
Euro Conversion. The planned introduction of a new European currency, the Euro,
may result in uncertainties for European securities in the markets in which they
trade and with respect to the operation of the Fund's portfolio. Currently, the
Euro is expected to be 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 that otherwise would not likely
occur. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, will not officially be implementing the
Euro on January 1, 1999. If the introduction of the Euro does not take place as
planned, there could be negative effects, such as severe currency fluctuations
and market disruptions.
The Adviser 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 portfolio holding is negative, it could
hurt the portfolio's performance.
Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
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<PAGE>
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a wholly owned
subsidiary of Scudder Kemper, is the principal underwriter and distributor of
the Fund's shares and acts as agent of the Fund in the sale of its shares. KDI
bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI provides for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI bears the cost
of qualifying and maintaining the qualification of Fund shares for sale under
the securities laws of the various states and the Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI that provide distribution services to investors. KDI
also may provide some of the distribution services.
Class A Shares. KDI receives no compensation from the 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 shares and pays or
allows concessions or discounts to firms for the sale of the Fund's shares.
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to Class B shares. This fee is accrued
daily as an expense of Class B shares. KDI also receives any contingent deferred
sales charges. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the distribution agreement, KDI receives
a fee from the Fund pursuant to a Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to
Class C shares. This fee is accrued daily as an expense of Class C shares. KDI
currently advances to firms the first year distribution fee at a rate of 0.75%
of the purchase price of 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
Charge -- Class C Shares."
Rule 12b-1 Plan. The Fund has adopted a Rule 12b-1 Plan that provides for fees
payable as an expense of the Class B shares and the Class C shares that are used
by KDI to pay for distribution services for those classes. The Plan is approved
and reviewed separately for the Class B shares and the Class C shares in
accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses
25
<PAGE>
of distributing its shares. The Fund's Rule 12b-1 Plan is separate from its
distribution agreement.
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of the Fund to make payments to KDI pursuant to the Plan will
cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
Administrative Services. KDI also provides information and administrative
services for shareholders of the Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various broker-dealer firms and other service or
administrative firms ("firms"), that provide services and facilities for their
customers or clients who are investors of the Fund. Such administrative services
and assistance may include, but are not limited to, establishing and maintaining
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all of its expenses of
providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreements,
the Fund pays KDI a fee, payable monthly, at an annual rate of up to 0.25% of
average daily net assets of Class A, B and C shares of the Fund. With respect to
Class A shares, Class B shares and Class C shares, KDI pays each firm a service
fee, normally payable quarterly, at an annual rate of up to 0.25% of net assets
of those accounts in the Fund that it maintains and services attributable to
Class B shares and Class C shares, respectively. Firms to which service fees may
be paid include affiliates of KDI.
Class A Shares. For Class A shares, a firm becomes eligible for the service fee
based on assets in the accounts in the month following the month of purchase and
the fee continues until terminated by KDI or the Fund. The fees are calculated
monthly and normally paid quarterly.
Class B and Class C Shares. KDI currently advances to firms the first year
service fee at a rate of up to 0.25% of the purchase price of 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 Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
26
<PAGE>
that KDI will pay all the administrative services fee that it receives from the
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of the Fund while this procedure is in
effect will depend upon the proportion of Fund assets that is in accounts for
which a firm provides administrative services. In addition, KDI may, from time
to time, from its own resources, pay certain firms additional amounts for
ongoing administrative services and assistance provided to their customers and
clients who are shareholders of the Funds.
Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund maintained in the United
States. Kemper Service Company ("KSvC"), an affiliate of the Adviser, serves as
"Shareholder Service Agent" of the Fund and as such, performs duties as transfer
agent and dividend-paying agent. For a description of shareholder service agent
fees payable to the Shareholder Service Agent, see "Investment Manager and
Underwriter" in the Statement of Additional Information.
Portfolio Transactions. The Adviser places all orders for purchases and sales of
the Fund's securities. Subject to seeking best execution of orders, the Adviser
may consider sales of shares of the Fund and other funds managed by the Adviser
or its affiliates as a factor in selecting broker-dealers. See "Portfolio
Transactions" in the Statement of Additional Information.
DIVIDENDS AND TAXES
Dividends. The Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized capital gains at least
annually.
Dividends paid by the Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same proportion for
each class.
Income dividends and capital gain dividends, if any, of the Fund will be
credited to shareholder accounts in full and fractional shares of the same class
of the Fund at net asset value, except that, upon written request to the
Shareholder Service Agent, a shareholder may select one of the following
options:
1. To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
2. To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class of the Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the
27
<PAGE>
Fund invested in shares of the same class of another Kemper Fund at the net
asset value of such class of such other fund. See "Special Features -- Class A
Shares -- Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Fund reinvests dividend checks (and future
dividends) in shares of the 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 Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
Taxes. Dividends derived from net investment income and net short-term capital
gains are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year declared. A portion of the
dividends paid by the Fund may qualify for the dividends received deduction
available to corporate shareholders. However, it is anticipated that only a
small portion, if any, of the dividends paid by the Fund will so qualify.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Fund dividends that are derived from interest on direct (but not guaranteed)
obligations of the U.S. Government and certain of its agencies and
instrumentalities are exempt from state and local taxes in many states.
Shareholders should consult their tax advisers regarding the possible exclusion
of such portion of their dividends for state and local income tax purposes.
Upon a sale or exchange of Fund shares a shareholder may realize a capital gain
or loss which may be long-term or short-term, depending on the shareholder's
holding period for the shares.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes,
28
<PAGE>
including information regarding any foreign taxes and credits, will be provided
after the end of the calendar year. Shareholders are encouraged to retain copies
of their account confirmation statements or year-end statements for tax
reporting purposes, including information regarding any foreign taxes and
credits. However, those who have incomplete records may obtain historical
account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of a 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 the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of a Fund is computed as of the close of regular trading
(the "value time") on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.
With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security, which is traded on The Nasdaq Stock Market Inc.
("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
29
<PAGE>
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by a 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 of the particular fund may calculate the price
of that debt security, subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
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 a Fund is determined
in a manner which, in the discretion of the Valuation Committee, most fairly
reflects market value of the property on the valuation date.
Following the valuations of securities or other portfolios 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.
30
<PAGE>
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
Annual 12b-1 Fees
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
Class A Maximum initial sales None Initial sales charge
charge of 4.5% of the waived or reduced
public offering price for certain
purchases (1)
Class B Maximum contingent 0.75% Shares convert to
deferred sales charge Class A shares six
of 4% of redemption years after issuance
proceeds; declines to
zero after six years
Class C Contingent deferred 0.75% No conversion feature
sales charge of 1% of
redemption proceeds
for redemptions made
during first year
after purchase
- -----------
(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 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
31
<PAGE>
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. In order to begin accruing income
dividends as soon as possible, purchasers may wire payment to United Missouri
Bank of Kansas City, N.A., 10th and Grand Avenue, Kansas City, Missouri 64106.
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 of the Fund choosing the initial sales charge
alternative is the net asset value plus a sales charge, as set forth below.
Allowed to
Sales Charge As a Dealers as a
As a Percentage Percentage of Percentage of
Amount of Purchase of Offering Price Net Asset Value* Offering Price
- ------------------ ----------------- ---------------- --------------
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less 3.50 3.63 3.00
than $250,000
$250,000 but less 2.60 2.67 2.25
than $500,000
$500,000 but less 2.00 2.04 1.75
than $1 million
$1 million and over .00** .00** ***
- -----------
* 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 Class A 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 reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may
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<PAGE>
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 by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features;" or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, KDI will consider the cumulative amount
invested by the purchaser in the Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of the Fund at net asset value under the Large Order NAV Purchase Privilege is
not available if another net asset value purchase privilege also applies.
Class A shares of the Fund or any other Kemper Mutual Fund listed under "Special
Features -- Class A Shares -- Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferrable
and continues for the lifetime of individual class members and for a ten-year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the
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purchaser as a member of the "Tabankin Class." Shares purchased under this
privilege will be maintained in a separate account that includes only shares
purchased under this privilege. For more details concerning this privilege,
class members should refer to the Notice of (1) Proposed Settlement with
Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement, dated
August 31, 1995, issued in connection with the aforementioned court proceeding.
For sales of Fund shares at net asset value pursuant to this privilege, KDI may
at its discretion pay investment dealers and other financial services firms a
concession, payable quarterly, at an annual rate of up to 0.25% of net assets
attributable to such shares maintained and serviced by the firm. A firm becomes
eligible for the concession based upon assets in accounts attributable to shares
purchased under this privilege in the month after the month of purchase and the
concession continues until terminated by KDI. The privilege of purchasing Class
A shares of the Fund at net asset value under this privilege is not available if
another net asset value purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families; (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on September
8, 1995, and have continuously owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves or members of their
families, and (d) any trust or pension, profit-sharing or other benefit plan for
only such persons. Class A shares may be sold at net asset value in any amount
to selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services related
to order placement and payment to facilitate transactions in shares of the Fund
for their clients pursuant to an agreement with KDI or one of its affiliates.
Only those employees of such banks and other firms who as part of their usual
duties provide services related to transactions in Fund Class A shares may
purchase Fund shares at net asset value hereunder. Class A shares may be sold at
net asset value in any amount to unit investment trusts sponsored by Ranson &
Associates, Inc. In addition, unitholders of unit investment trusts sponsored by
Ranson & Associates, Inc. or its predecessors may purchase the Fund's Class A
shares at net asset value through reinvestment programs described in the
prospectuses of such trusts that have such programs. Class A shares of the Fund
may be purchased at net asset value by 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 KDI, 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
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<PAGE>
a fee to the investment adviser or other firm for portfolio management or agency
brokerage services. Such shares are sold for investment purposes and on the
condition that they will not be resold except through redemption or repurchase
by the Funds. The Fund may also issue Class A shares at net asset value in
connection with the acquisition of the assets of or merger or consolidation with
another investment company, or to shareholders in connection with the investment
or reinvestment of income and capital gain dividends.
Class A shares of the Fund may be purchased at net asset value 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 the Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI
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<PAGE>
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
same Fund six years after issuance on the basis of the relative net asset value
per share. The purpose of the conversion feature is to relieve holders of Class
B shares from the distribution services fee when they have been outstanding long
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
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<PAGE>
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 by the firm under the following conditions: (I) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSvC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KSvC in acknowledgment of their
dedication to the employee benefit plan area and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by KDI.
Order for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). 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.
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Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, the Fund
may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Special Promotion. From November 30, 1998 to January 29, 1999 ("Special Offering
Period"), KDI, the principal underwriter for the Fund, intends to reallow to
dealers the full applicable sales charge with respect to Class A shares of the
Fund purchased during the Special Offering Period (not including shares acquired
at net asset value). KDI also intends to pay to firms an additional commission
of 0.50% with respect to Class B shares of the Fund purchased during the Special
Offering Period, not including exchanges or other transactions for which
commissions are not paid.
Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this
prospectus.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer
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agent, the shareholder may redeem them by sending a written request with
signatures guaranteed to Kemper Mutual Funds, Attention: Redemption Department,
P.O. Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares
have been issued, they must be mailed to or deposited with the Shareholder
Service Agent, along with a duly endorsed stock power and accompanied by a
written request for redemption. Redemption requests and a stock power must be
endorsed by the account holder with signatures guaranteed by a commercial bank,
trust company, savings and loan association, federal savings bank, member firm
of a national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a 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 the Fund will be the net asset value per
share 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 an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
39
<PAGE>
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, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders,
provided the trustee, executor or guardian is named in the account registration.
Other institutional account may exercise this special privilege of redeeming
shares by telephone request or written request without signature guarantee
subject to the same conditions as individual account holders and subject to the
limitations on liability described under "General" above, provided that this
privilege has been pre-authorized by the institutional account holder or
guardian account holder by written instruction to the Shareholder Service Agent
with signatures guaranteed. Telephone requests may be made by calling
1-800-621-1048. Shares purchased by check or through EXPRESS-Transfer or Bank
Direct Deposit may not be redeemed under this privilege of redeeming shares by
telephone request until such shares have been owned for at least 10 days. This
privilege of redeeming shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificated form
and may not be used if the shareholder's account has had an address change
within 30 days of the redemption request. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the telephone redemption privilege, although investors can still redeem by mail.
The Fund reserves the right to terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after
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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 request of $250,000 or more may be delayed by the Fund for up to
seven days if the Adviser deems it appropriate under then current market
conditions. Once authorization is on file, the Shareholder Service Agent will
honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability described under "General" above. The 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
redemption privilege. The Fund reserves the right to terminate or modify this
privilege at any time.
Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
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participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge -- Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
- --------------------------------- ------------
First............................................................. 4%
Second............................................................ 3%
Third............................................................. 3%
Fourth............................................................ 2%
Fifth............................................................. 2%
Sixth............................................................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
- -- Systematic Withdrawal Plan" below) and (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
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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) 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.
Contingent Deferred Sales Charge -- General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 in appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
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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
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Mutual 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 Mutual Funds. A shareholder of the Fund
or other Kemper Mutual Fund who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares") 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 Class A shares, Class B
shares or Class C shares, as the case may be, of the Fund or of other Kemper
Mutual Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge. Also, a holder of
Class B shares who has redeemed shares may reinvest up to the full amount
redeemed, less any applicable contingent deferred sales charge that may have
been imposed upon the redemption of such shares, at net asset value in Class A
shares of the Fund or of the other Kemper Mutual Funds listed under "Special
Features -- Class A Shares -- Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features -- Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of the Fund's
shares, the reinvestment in 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.
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
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following funds: Kemper High Yield Fund II, Kemper Technology Fund, Kemper Total
Return Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund, Kemper
Income and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper
Diversified Income Fund, Kemper High Yield Series, Kemper U.S. Government
Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series,
Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper
Global Income Fund, Kemper Target Equity Fund (series are subject to a limited
offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves
Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund,
Kemper Value Series, Inc., Kemper Value+Growth Fund, Kemper Quantitative Equity
Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper U.S.
Growth and Income Fund, Kemper-Dreman Financial Services Fund, Kemper Value
Fund, Kemper Classic Growth Fund and Kemper Global Discovery Fund ("Kemper
Mutual Funds"). Except as noted below, there is no combined purchase credit for
direct purchases of shares of Zurich Money Funds, Zurich YieldWise Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investors Municipal Cash Fund or Investors Cash Trust ("Money Market
Funds"), which are not considered "Kemper Mutual Funds" for purposes hereof. For
purposes of the Combined Purchases feature described above as well as for the
Letter of Intent and Cumulative Discount features described below, employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent may include: (a) Money Market
Funds as "Kemper Mutual Funds," (b) all classes of shares of any Kemper Mutual
Fund, and (c) the value of any other plan investments, such as guaranteed
investment contracts and employer stock, maintained on such subaccount record
keeping system.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the
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Shareholder Service Agent may have special provisions regarding payment of any
increased sales charge resulting from a failure to complete the intended
purchase under the Letter. A shareholder may include the value (at the maximum
offering price) of all shares of such Kemper Mutual Funds held of record as of
the initial purchase date under the Letter as an "accumulation credit" toward
the completion of the Letter, but no price adjustment will be made on such
shares. Only investments in Class A shares of the Fund 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 Mutual Funds (computed at the maximum offering
price at the time of the purchase for which the discount is applicable) already
owned by the investor.
Class A Shares -- Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and 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 Mutual Fund or a
Money Market Fund under the exchange privilege described above without paying
any contingent deferred sales charge at the time of exchange. If the Class A
shares received on exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed in accordance with the foregoing requirements provided
that the shares redeemed will retain their original cost and purchase date for
purposes of the contingent deferred sales charge.
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Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the 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 Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, they retain the cost and purchase date of the
shares that were originally purchased and exchanged.
General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15 Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction, or
advice, including without limitation, accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis 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 KSvC, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares -- General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use
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the telephone exchange privilege. The exchange privilege is not a right and may
be suspended, terminated or modified at any time. Except as otherwise permitted
by applicable regulations, 60 days' prior written notice of any termination or
material change will be provided. 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 the portfolios of Investors Municipal Cash Fund are available for sale only
in certain states.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege" except that the $1,000 minimum investment requirement
for the Kemper Fund acquired on exchange is not applicable. This privilege may
not be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50 maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit,
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the shareholder authorizes the Fund and its agents to either draw checks or
initiate Automated Clearing House debits against the designated account at a
bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to KSvC, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination by a shareholder will become effective within
thirty days after the Shareholder Service Agent has received the request. The
Fund may immediately terminate a shareholder's Plan in the event that any item
is unpaid by the shareholder's financial institution. The Funds may terminate or
modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in 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 up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares 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
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Privilege, Class B shares and Class C shares made pursuant to a systematic
withdrawal plan. The right is reserved to amend the systematic withdrawal plan
on 30 days' notice. The plan may be terminated at any time by the investor or
the Funds.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Individual Retirement Accounts ("IRAs") with Investors Fiduciary Trust
Company ("IFTC") as custodian. This includes Savings Incentive Match Plan
for Employees of Small Employers ("SIMPLE"), IRA accounts and Simplified
Employee Pension Plan ("SEP") IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan
is available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
PERFORMANCE
The Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for Class A, Class B and
Class C shares of the Fund. Each of these figures is based upon historical
results and is not representative of the future performance of any class of the
Fund. The Fund with fees or expenses being waived or absorbed by the Adviser may
also advertise performance information before and after the effect of the fee
waiver or expense absorption.
The Fund's yield is a measure of the net investment income per share earned over
a specific one month or 30-day period expressed as a percentage of the maximum
offering price of the Fund's shares at the end of the period. Yield is an
annualized figure, which means that it is assumed that the Fund generates the
same level of net investment income over a one year period. Net investment
income is assumed to be compounded semiannually when it is annualized.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
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portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes including, but not limited to, the Salomon
Brothers High Grade Corporate Bond Index, the Lehman Brothers Adjustable Rate
Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers
Government/Corporate Bond Index, the Salomon Brothers Long-Term High Yield
Index, the Salomon Brothers 30 Year GNMA Index and the Merrill Lynch Market
Weighted Index and may also be compared to the performance of other mutual funds
or mutual fund indexes with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charge.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among other things, the BANK RATE MONITOR National IndexTM or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI").
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
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The yield or price volatility of the Fund may be compared to various securities,
such as U.S. Government Securities, or indexes, such as the COFI referred to
above or the Constant Maturity Treasury Index ("CMT") published by the Federal
Reserve Board. The Fund may include in its sales literature and shareholder
reports a quotation of the current "distribution rate" for the Fund.
Distribution rate is simply a measure of the level of dividends distributed for
a specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during the period.
Distribution rate is, therefore, not intended to be a complete measure of
performance. Distribution rate may sometimes be greater than yield since, for
instance, it may include gains from the sale of options or other short-term and
possibly long-term gains (which may be non-recurring) and may not include the
effect of amortization of bond premiums. As reflected under "Investment
Objectives, Policies and Risk Factors -- Additional Investment Information,"
option writing can limit the potential for capital appreciation.
Class A shares of the Fund are sold at net asset value plus a maximum sales
charge of 4.5% of the offering price. While the maximum sales charge is normally
reflected in the Fund's Class A performance figures, certain total return
calculations may not include such charge and those results would be reduced if
it were included. Class B shares and Class C shares are sold at net asset value.
Redemptions of Class B shares within the first six years after purchase may be
subject to a contingent deferred sales charge that ranges from 4% during the
first year to 0% after six years. Redemption of Class C shares within the first
year after purchase may be subject to a 1% contingent deferred sales charge.
Average annual total return figures do, and total return figures may, include
the effect of the contingent deferred sales charge for the Class B shares and
Class C shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares and Class C shares not including the
effect of the applicable contingent deferred sales charge would be reduced if it
were included.
The Fund's returns and net asset value will fluctuate and shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning the Fund's performance appears in the Statement of
Additional Information. Additional information about the Fund's performance also
appears in its Annual Report to Shareholders, which is available without charge
from the applicable Fund.
CAPITAL STRUCTURE
The Fund is a series of Kemper Income Trust (the "Trust"), a registered
management investment company organized as a business trust under the laws of
Massachusetts on August 27, 1998.
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The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having $.01 par value, which may be divided
by the Board of Trustees into classes of shares. The Board of Trustees of the
Trust may authorize the issuance of additional classes and additional Portfolios
if deemed desirable, each with its own investment objective, policies and
restrictions. Since the Trust may offer multiple Portfolios, it is known as a
"series company." Shares of a fund or "Portfolio" have equal noncumulative
voting rights and equal rights with respect to dividends, assets and liquidation
of such Portfolio and are subject to any preferences, rights or privileges of
any classes of shares of the Portfolio. Currently, the Trust , on behalf of the
Fund, offers four classes of shares. These are Class A, Class B, Class C shares
and Class I shares, which have different expenses, that may affect performance.
Class I shares are available for purchase exclusively by the following
institutional investors: (a) tax-exempt retirement plans (Profit Sharing,
401(k), Money Purchase Pension and Defined Benefit Plans) of the Adviser and its
affiliates and rollover accounts from those plans; (b) the following investment
advisory clients of the Adviser and its investment advisory affiliates that
invest at least $1 million in a Fund: unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); unaffiliated banks and insurance companies
purchasing for their own accounts; and endowment funds of unaffiliated
non-profit organizations; (c) investment-only accounts for large qualified
plans, with at least $50 million in total plan assets or at least 1000
participants; (d) trust and fiduciary accounts of trust companies and bank trust
departments providing fee based advisory services that invest at least $1
million in a Fund on behalf of each trust; and (e) policy holders under
Zurich-American Insurance Group's collateral investment program investing at
least $200,000 in a Fund. Shares of the Fund have equal noncumulative voting
rights except that Class B and Class C shares have separate and exclusive voting
rights with respect to the Fund's Rule 12b-1 Plan. Shares of each class also
have equal rights with respect to dividends, assets and liquidation subject to
any preferences (such as resulting from different Rule 12b-1 distribution fees),
rights or privileges of any classes of shares of the Fund. Shares of the Fund
are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholder meetings and does not intend to do so.
However, it will hold special meetings as required or deemed desirable for such
purposes as electing trustees, changing fundamental policies or approving an
investment management agreement. Subject to the Agreement and Declaration of
Trust of the Trust, shareholders may remove trustees. If shares of more than one
Portfolio for the Trust are outstanding, shareholders will vote by Portfolio and
not in the aggregate or by class except when voting in the aggregate is required
under the 1940 Act, such as for the election of trustees, or when voting by
class is appropriate.
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Investment Manager
Scudder Kemper Investments, Inc.
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[KEMPER LOGO]
Long-term investing in a short-term world(SM)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 30, 1998
Kemper High Yield Fund II
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 High Yield Fund II (the "Fund"),
a diversified series of Kemper Income Trust (the "Trust"), an open-end
management investment company. It should be read in conjunction with the
prospectus of the Fund dated November 30, 1998. The prospectus may be obtained
without charge from the Fund at the address or telephone number on this cover or
from the firm from which this Statement of Additional Information was obtained.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.....................................2
INVESTMENT POLICIES AND TECHNIQUES..........................3
PORTFOLIO TRANSACTIONS......................................8
INVESTMENT MANAGER AND UNDERWRITER..........................9
PURCHASE AND REDEMPTION OF SHARES..........................12
DIVIDENDS AND TAXES........................................13
PERFORMANCE................................................
OFFICERS AND TRUSTEES......................................18
APPENDIX --RATINGS OF INVESTMENTS..........................22
Scudder Kemper Investments, Inc. acts as the Fund's investment manager.
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, 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 Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction from time to time;
(b) issue senior securities, 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;
(c) purchase physical commodities or contracts relating to
physical commodities;
(d) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(e) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(f) make loans 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;
and
(g) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The Fund may not, as a non-fundamental policy which may be changed by the
Trustees without a vote of shareholders:
(1) invest more than 15% of the value of its net assets in
illiquid securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
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INVESTMENT POLICIES AND TECHNIQUES
General. The Fund may engage in options and financial futures and other
derivatives transactions in accordance with its investment objectives 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 for
speculative purposes. The use of futures and options, and possible benefits and
attendant risks, are discussed below along with information concerning other
investment policies and techniques.
Options on Securities. The Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. The Fund may write "covered" put options provided that, as long as
the Fund is obligated as a writer of a put option, the Fund will own an option
to sell the underlying securities subject to the option, having an exercise
price equal to or greater than the exercise price of the "covered" option, or it
will deposit and maintain in a segregated account eligible securities having a
value equal to or greater than the exercise price of the option. A call option
gives the purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during or at the end of the option
period. A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the exercise price during or at
the end of the option period. The premium received for writing an option will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the price
volatility of the underlying security, the option period, supply and demand and
interest rates. The Fund may write or purchase spread options, which are options
for which the exercise price may be a fixed dollar spread or yield spread
between the security underlying the option and another security that is used as
a bench mark. The exercise price of an option may be below, equal to or above
the current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows the Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times the Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, the Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because the Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
Over-the-Counter Options. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Fund may deal in over-the-counter
traded options ("OTC options"). OTC options differ from exchange traded options
in several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are
exchange
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traded options. Since there is no exchange, pricing is normally done by
reference to information from market makers, which information is carefully
monitored by the investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Fund's portfolio. A brief description of
such procedures is set forth below.
The Fund will only engage in OTC options transactions with dealers that have
been specifically approved by the investment manager pursuant to procedures
adopted by the Fund's Board of Trustees. The investment manager believes that
the approved dealers should be able to enter into closing transactions if
necessary and, therefore, present minimal credit risks to the Fund. The
investment manager will monitor the creditworthiness of the approved dealers on
an ongoing basis. The Fund currently will not engage in OTC options transactions
if the amount invested by the Fund in OTC options, plus a "liquidity charge"
related to OTC options written by the Fund, plus the amount invested by the Fund
in illiquid securities, would exceed 15% of the Fund's net assets. The
"liquidity charge" referred to above is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
Options on Securities Indices. The Fund also may purchase and write call and put
options on securities indices in an attempt to hedge against market conditions
affecting the value of securities that the Fund owns or intends to purchase, and
not for speculation. Through the writing or purchase of index options, the Fund
can achieve many of the same objectives as through the use of options on
individual securities. Options on securities indices are similar to options on a
security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike security options, all settlements are in cash and gain or
loss depends upon price movements in the market generally (or in a particular
industry or segment of the market), rather than upon price movements in
individual securities. Price movements in securities that the Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index since the prices of such securities may be affected by
somewhat different factors and, therefore, the Fund bears the risk that a loss
on an index option would not be completely offset by movements in the price of
such securities.
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When the Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
The Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on a securities index
involve risks similar to those risks relating to transactions in financial
futures contracts described below. Also, an option purchased by the Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.
Financial Futures Contracts. The Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, or an
amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
The Fund will incur brokerage fees when it purchases or sells contracts, and
will be required to maintain margin deposits. At the time the Fund enters into a
futures contract, it is required to deposit with its custodian, on behalf of the
broker, a specified amount of cash or eligible securities, called "initial
margin." The initial margin required for a futures contract is set by the
exchange on which the contract is traded. Subsequent payments, called "variation
margin," to and from the broker are made on a daily basis as the market price of
the futures contract fluctuates. The costs incurred in connection with futures
transactions could reduce the Fund's return. Futures contracts entail risks. If
the investment manager's judgment about the general direction of markets or
exchange rates is wrong, the overall performance may be poorer than if no such
contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
Options on Financial Futures Contracts. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. The
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Fund will establish segregated accounts or will provide cover with respect to
written options on financial futures contracts in a manner similar to that
described under "Options on Securities." Options on futures contracts involve
risks similar to those risks relating to transactions in financial futures
contracts described above. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium paid therefor.
Delayed Delivery Transactions. The Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. When the Fund enters into a delayed
delivery transaction, it becomes obligated to purchase securities and it has all
of the rights and risks attendant to ownership of a security, although delivery
and payment occur at a later date. The value of fixed income securities to be
delivered in the future will fluctuate as interest rates vary. At the time the
Fund makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the liability for the
purchase and the value of the security in determining its net asset value.
Likewise, at the time the Fund makes the commitment to sell a security on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. The Fund generally has the ability to close out a purchase obligation on
or before the settlement date, rather than take delivery of the security.
To the extent the Fund engages in when-issued or delayed delivery purchases, it
will do so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies. The Fund reserves the right to sell
these securities before the settlement date if deemed advisable.
Regulatory Restrictions. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward currency exchange purchase, the
Fund will maintain eligible securities in a segregated account. The Fund will
use cover in connection with selling a futures contract.
The Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only in an attempt to hedge against changes
in interest rates or market conditions affecting the value of securities which
the Fund holds or intends to purchase.
Foreign Currency Options. The Fund may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if the Fund
were holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
Foreign Currency Futures Transactions. As part of its financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
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Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
Forward Foreign Currency Exchange Contracts. The Fund may engage in forward
foreign currency transactions. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days ("term") from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. The investment manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that to do so is in the best interests of the Fund. The Fund will not speculate
in foreign currency exchange.
If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. The
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.
The Fund will not enter into forward contracts or maintain a net exposure in
such contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. See "Foreign Currency Transactions" under
"Investment Objectives, Policies and Risk Factors -- Additional Investment
Information" in the prospectus. The Fund segregates eligible securities to the
extent required by applicable regulation in connection with forward foreign
currency exchange contracts entered into for the purchase of foreign currency.
The Fund does not intend to enter into forward contracts for the purchase of a
foreign currency if they would have more than 15% of the value of its total
assets committed to such contracts. The Fund generally will not enter into a
forward contract with a term longer than one year.
Collateralized Obligations. The Fund will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Fund's investments. Fully
collateralized means that the collateral will generate cash flows sufficient to
meet obligations to holders of the collateralized obligations under even the
most conservative prepayment and interest rate projections. Thus, the
collateralized obligations are structured to anticipate a worst case prepayment
condition and to minimize the reinvestment rate risk for cash flows between
coupon dates for the collateralized obligations. A worst case prepayment
condition generally assumes immediate prepayment of all securities purchased at
a premium and zero prepayment of all securities purchased at a discount.
Reinvestment rate risk may be minimized by assuming very conservative
reinvestment rates and by other means such as by maintaining the flexibility to
increase principal distributions in a low interest rate environment. The
effective credit quality of the collateralized obligations in such instances is
the credit quality of the issuer of the collateral. The requirements as to
collateralization are determined by the issuer or sponsor of the collateralized
obligation in order to satisfy rating agencies, if rated. The Fund currently
does not intend to invest more than 5% of its total assets in collateralized
obligations that are collateralized by a pool of credit card or automobile
receivables or other types of assets rather than a pool of mortgages,
Mortgage-Backed Securities or U.S. Government Securities. Currently, the Fund
does not intend to invest more than 10% of its total assets in inverse floaters.
Payments of principal and interest on the underlying collateral securities are
not passed through directly to the holders of the collateralized obligations as
such. Collateralized obligations often are issued in two or more classes with
varying maturities and stated rates of interest. Because interest and principal
payments on the underlying securities are not passed through
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directly to holders of collateralized obligations, such obligations of varying
maturities may be secured by a single portfolio or pool of securities, the
payments on which are used to pay interest on each class and to retire
successive maturities in sequence. These relationships may in effect "strip" the
interest payments from principal payments of the underlying securities and allow
for the separate purchase of either the interest or the principal payments,
sometimes called interest only (IO) and principal only (PO) securities.
Collateralized obligations are designed to be retired as the underlying
securities are repaid. In the event of prepayment on or call of such securities,
the class of collateralized obligation first to mature generally will be paid
down first. Therefore, although in most cases the issuer of collateralized
obligations will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure collateralized
obligations that remain outstanding. It is anticipated that no more than 10% of
the Fund's total assets will be invested in IO and PO securities.
Governmentally-issued and privately-issued IO's and PO's will be considered
illiquid for purposes of the Fund's limitation on illiquid securities, however,
the Board of Trustees of the Fund may adopt guidelines under which
governmentally-issued IO's and PO's may be determined to be liquid.
Zero Coupon Government Securities. Subject to its investment objective and
policies, the Fund may invest in zero coupon U.S. Government Securities. Zero
coupon bonds are purchased at a discount from the face amount. The buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. These securities may
include those created directly by the U.S. Treasury and those created as
collateralized obligations through various proprietary custodial, trust or other
relationships (see "Investment Objectives, Policies and Risk Factors --
Additional Investment Information -- Collateralized Obligations" in the
prospectus). The effect of owning instruments which do not make current interest
payments is that a fixed yield is earned not only on the original investment but
also, in effect, on all discount accretion during the life of the obligation.
This implicit reinvestment of earnings at the same rate eliminates the risk of
being unable to reinvest distributions at a rate as high as the implicit yield
on the zero coupon bond, but at the same time eliminates any opportunity to
reinvest earnings at higher rates. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than those of comparable securities that pay interest
currently, which fluctuation is greater as the period to maturity is longer.
Zero coupon bonds created as collateralized obligations are similar to those
created through the U.S. Treasury, but the former investments do not provide
absolute certainty of maturity or of cash flows after prior classes of the
collateralized obligations are retired. The Fund currently does not intend to
invest more than 5% of its net assets in zero coupon U.S. Government Securities
during the current year.
Master/feeder fund structure. The Board of Trustees of the Fund has the
discretion to retain the current distribution arrangement for the Fund while
investing in a master fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or 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, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. 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 realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage may be placed by the Adviser.
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The primary objective of the Adviser in placing orders for the purchase and sale
of securities for the Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission (negotiable in the
case of U.S. national securities exchange transactions) where applicable, size
of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for the Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, the Adviser may give consideration to those firms that have sold or
are selling shares of the Fund managed by the Adviser.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees 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 Fund's portfolio turnover rate will not
exceed 100%.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), 345 Park Avenue, New York, New York, is the Fund's investment
manager. The Adviser is approximately 70% owned by Zurich Financial Services,
Inc., a newly formed global insurance and financial services company. The
balance of the Adviser is owned by its officers and employees. Pursuant to an
investment management agreement, Scudder Kemper acts as the Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to
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such positions. The investment management agreement provides that the Fund shall
pay the charges and expenses of its operations, including the fees and expenses
of the trustees (except those who are affiliated with the Adviser), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records thereto, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the Securities and Exchange
Commission, while the principal underwriter pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.
The investment management agreement provides that the Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
The Fund's investment management agreement continues in effect from year to year
so long as its continuation is approved at least annually by (a) a majority of
the trustees who are not parties to such agreement or interested persons of any
such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. The Fund's investment
management agreement may be terminated at any time upon 60 days' notice by
either party, or by a majority vote of the outstanding shares of the Fund, and
will terminate automatically upon assignment. If additional Funds become subject
to the investment management agreement, the provisions concerning continuation,
amendment and termination shall be on a Fund by Fund basis. Additional Funds may
be subject to a different agreement.
The current investment management fee rate paid by the Fund is in the
prospectus, see "Investment Manager and Underwriter."
Principal Underwriter. Pursuant to a separate underwriting and distribution
services agreement ("distribution agreements"), KDI, a wholly owned subsidiary
of the Adviser, is the principal underwriter and distributor for the shares of
the Fund and acts as agent of the Fund in the continuous offering of its shares.
KDI bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. The Fund pays the cost for
the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI, 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 continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Trust, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without penalty by the Fund or by
KDI upon 60 days notice. Termination by the Fund with respect to a class may be
by vote of a majority of the Board of Trustees, or a majority of the Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the class of the Fund, as defined under the Investment Company
Act of 1940. 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. The provisions concerning the continuation, amendment and
termination of the distribution agreement are on a class by class basis.
The Fund has adopted a plan in accordance with Rule 12b-1 of the 1940 Act (the
"12b-1 Plan"). This rule regulates the manner in which an investment company
may, directly or indirectly, bear the expenses of distributing shares. For its
services under the distribution agreement and pursuant to the 12b-1 Plan, the
Fund pays KDI a distribution services fee, payable monthly, at the annual rate
of 0.75% of average daily net assets for Class B and Class C shares.
Expenditures by KDI on behalf of the Portfolios need not be made on the same
basis that such fees are allocated. The fees are accrued daily as an expense of
the Fund.
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As principal underwriter for the Fund, KDI acts as agent of the Fund in the sale
of its shares. KDI pays all its expenses under the distribution agreement
including, without limitation, services fees to firms. The Fund pays the cost
for the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs.
The distribution agreement and the 12b-1 Plan continue in effect from year to
year so long as such continuance is approved at least annually 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 the
agreement. The distribution agreement automatically terminates in the event of
its assignment and may be terminated at any time without penalty by the Fund or
by KDI upon 60 days' written notice. Termination of the distribution agreement
by the Fund may be by vote of a majority of the Board of Trustees, or a majority
of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the Fund as defined under the 1940 Act. The
12b-1 Plan may not be amended to increase the fee to be paid by the Fund without
approval by a majority of the outstanding voting securities 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 12b-1 Plan.
The 12b-1 Plan may be terminated at any time without penalty by a vote of the
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the Plan, or by a vote of the
majority of the outstanding voting securities of the Fund. The Portfolios of the
Fund will vote separately with respect to the 12b-1 Plan.
Administrative Services. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at the annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.
KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms") that provide services and
facilities for their customers or clients who are investors of the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate up to 0.25% of net assets of those
accounts that it maintains and services, commencing with the month after
investment. With respect to Class B shares 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 an annual rate of up to 0.25% (calculated
monthly and normally paid quarterly) of the net assets attributable to Class B
and Class C shares maintained and serviced by the firm and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid
include affiliates of KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, however,
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 the
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of the Fund while this procedure is in
effect will depend upon the proportion of Fund assets that is in accounts for
which a firm of record provides administrative services, as well as, with
respect to Class A shares, the date when shares representing such assets were
purchased. The Board of Trustees of the Fund, in its discretion, may approve
basing the fee to KDI on all Fund assets in the future.
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Certain trustees or officers of the Trust are also directors or officers of the
Adviser or KDI as indicated under "Officers and Trustees."
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, is responsible for determining the daily net asset
value per share of the Fund and maintaining all accounting records related
thereto. The Fund pays SFAC an annual fee equal to 0.0250% of the first $150
million of average daily net assets, 0.0075% of the next $850 million of average
daily net assets and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service.
Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund maintained in the United
States. They attend to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Fund. Kemper
Service Company ("KSvC"), an affiliate of the Adviser, serves as "Shareholder
Service Agent" of the Fund, and as such, acts as transfer agent and dividend
paying agent. As Shareholder Service Agent, KSvC receives annual account fees of
$14 ($23 for retirement plans) per account plus account set up charges and
annual fees associated with the contingent deferred sales charge (Class B only)
and a 0.05% annual asset based fee and out-of-pocket expense reimbursement.
Independent Auditors and Reports to Shareholders. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
Legal Counsel. Dechert Price & Rhoads, Ten Post Office Square, Boston,
Massachusetts 02109, serves as legal counsel to the Fund.
PURCHASE AND REDEMPTION OF SHARES
As described in the Fund's prospectus, shares of the Fund are sold at their
public offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares of the Fund, an initial sales charge. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100 but such minimum amounts
may be changed at any time. See the prospectus for certain exceptions to these
minimums. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until the Fund determines that it has received payment of the proceeds of
the check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described in the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemption of Class B or Class C shares by certain classes of persons or through
certain types of transactions as described in the prospectus are provided
because of anticipated economies in sales and sales related efforts.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares
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might continue to be subject to the distribution services fee for an indefinite
period that may extend beyond the proposed conversion date as described in the
prospectus.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on the Fund's behalf. Orders
for purchase or redemption will be deemed to have been received by the Fund when
such brokers or their authorized designees accept the orders. Subject to the
terms of the contract between the Fund and the broker, ordinarily orders will be
priced as the Fund's net asset value next computed after acceptance by such
brokers or their authorized designees. Further, if purchases or redemptions of
the Fund's shares are arranged and settlement is made at an investor's election
through any other authorized NASD member, that member may, at its discretion,
charge a fee for that service. The Board of Trustees or Directors as the case
may be ("Board") of the Fund and KDI each has the right to limit the amount of
purchases by, and to refuse to sell to, any person. The Board and KDI may
suspend or terminate the offering of shares of the Fund at any time for any
reason.
DIVIDENDS AND TAXES
Dividends. The Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized capital gains at least
annually.
The Fund may at any time vary its foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund paying such dividends unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Kemper Funds as described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same
proportion 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).
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The Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for each calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, The Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a relative share of federal income taxes paid by the Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between a pro rata share of such gains owned and the individual tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
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 Scudder Kemper
fund, may result in tax consequences (gain or loss) to the shareholder and are
also subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any taxable
year only if (i) neither the individual nor his or her spouse (unless filing
separate returns) is an active participant in an employer's retirement plan, or
(ii) the individual (and his or her spouse, if applicable) has an adjusted gross
income below a certain level ($40,050 for married individuals filing a joint
return, with a phase-out of the deduction for adjusted gross income between
$40,050 and $50,000; $25,050 for a single individual, with a phase-out for
adjusted gross income between $25,050 and $35,000). However, an individual not
permitted to make a deductible contribution to an IRA for any such taxable year
may nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts
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treated as a return of nondeductible contributions will not be taxable. Also,
annual contributions may be made to a spousal IRA even if the spouse has
earnings in a given year if the spouse elects to be treated as having no
earnings (for IRA contribution purposes) for the year.
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.
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.
The Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes related
primarily to investment income). The Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities as foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. Furthermore, the
foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholders, as the case may be, for less than 16 days. (46
days in the case of preferred shares) during the 30-day period (90-day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex-dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.
The Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
the Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which the Fund held the PFIC shares. The Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.
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 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 shares would be
deductible as ordinary loss 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 the 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.
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
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lapses or is closed out, any gain or loss is treated as a short-term capital
gain or loss. If a call option is exercised, any resulting gain or loss is
short-term or long-term capital gain or loss depending on the holding period of
the underlying security. The exercise of a put option written by the Fund is not
a taxable transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of the Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
Fund's portfolio.
Positions of the Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting 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 options
contracts, gains or losses attributable to fluctuations in the value of 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 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
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addition, if the Fund invest 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 deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.
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 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 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 Mutual Fund listed in the
prospectus under "Special Features-Class A Shares-Combined Purchases (other than
shares of Kemper Cash Reserves Fund not acquired by exchange from another Kemper
Mutual Fund) may reinvest the amount redeemed at net asset value at the time of
the reinvestment in shares of the Fund or in shares of the other Kemper Mutual
Funds within six months of the redemption as described in the prospectus under
"Redemption or Repurchase of Shares-Reinvestment Privilege." If redeemed shares
were held less than 91 days, then the lesser of (a) the sales charge waived on
the reinvested shares, or (b) the sales charge incurred on the redeemed shares,
is included in the basis of the reinvested shares and is not included in the
basis of the redeemed shares. If a shareholder realizes a loss on the redemption
or exchange of the Fund's shares and reinvests in shares of the Fund within 30
days before or after the redemption or exchange, the transactions may be subject
to the wash sale rules resulting in a postponement of the recognition of such
loss for federal income tax purposes. An exchange of the Fund's shares for
shares of another fund is treated as a redemption and reinvestment for federal
income tax purposes upon which gain or loss may be recognized.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The 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)
17
<PAGE>
on amounts constituting ordinary income received by him or her, where such
amounts are treated as income from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
PERFORMANCE
As described in the prospectus, the Fund's historical performance or return for
a class of shares may be shown in the form of "yield" and "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 yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. The Fund's yield is computed
by dividing the net investment income per share earned during the specified one
month or 30-day period by the maximum offering price per share (which is net
asset value for Class B and Class C shares) on the last day of the period,
according to the following formula:
YIELD = 2 [ (a-b +1 )^6 - 1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the
last day of the period (which is net asset value
for Class B and Class C shares).
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for 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 shares or Class C shares includes 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 deducting the maximum sales charge.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements and prospectus. Total return performance for
a specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B 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 would be
reduced if such charge were included.
18
<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 4.5% of the offering price). Class B
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
purchase. Returns and net asset value will fluctuate. Factors affecting the
Fund's performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
Investors may want to compare the performance of the Fund to that of
certificates of deposit issued by banks and other depository institutions.
Certificates of deposit represent an alternative income-producing product.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of deposits prior to maturity will
normally be subject to a penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the issuing
institution. The shares of the Fund are not insured and net asset value as well
as yield will fluctuate. Shares of the Fund are redeemable at net asset value
which, may be more or less than original cost. The bonds in which the Fund
invests are generally of longer term than most certificates of deposit and may
reflect longer-term market interest rate fluctuations.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds because such instruments represent alternative
income producing products. 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. The net asset value of the Fund will fluctuate. Shares of the Fund are
redeemable at net asset value, which may be more or less than original cost. The
Fund's yield will also fluctuate.
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with the Adviser and KDI, are listed
below. All persons named as officers and trustees also serve in similar
capacities for other funds advised by the Adviser.
DAVID W. BELIN (6/20/28), Trustee, 2000 Financial Center, 7th and Walnut, Des
Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A.O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food products); formerly, Vice
President, Head of International Operations, FMC Corporation (manufacturer of
machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Adviser; formerly, Head of
Broker Dealer Division of an unaffiliated investment management firm
19
<PAGE>
during 1997; prior thereto, President of Client Management Services of an
unaffiliated investment management firm from 1991 to 1996.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director, Bethlehem Steel Corp.
DANIEL PIERCE (3/18/34), Chairman and Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser.
KATHRYN L. QUIRK (12/3/52), Trustee and Vice President*, 345 Park Avenue, New
York, New York; Managing Director, Adviser.
WILLIAM P. SOMMERS (7/22/33), Trustee, 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); formerly, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton Inc. (management consulting
firm)(retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser; formerly, Institutional Sales Manager of an
unaffiliated mutual fund distributor.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Assistant Secretary,
Adviser.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
MICHAEL A. McNAMARA (55), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, Scudder Kemper.
HARRY E. RESIS, JR. (54), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, Scudder Kemper; formerly, First Vice President,
PaineWebber Incorporated.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser; formerly, Associate,
Dechert Price & Rhoads (law firm) 1989 to 1997.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Adviser and KDI.
* Interested persons as defined in the 1940 Act.
Compensation of Officers and Trustees
20
<PAGE>
The Trustees and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those Trustees who are not designated "interested persons" by Scudder
Kemper managed Funds. The information is for calendar year 1997. The Trust has
not yet adopted a Trustees compensation schedule.
Total Compensation Scudder Kemper
Name of Trustee Managed Funds Paid to Trustees (2)
- --------------- ----------------------------------
David W. Belin (1) $168,100
Lewis A. Burnham 117,800
Donald L. Dunaway (1) 162,700
Robert B. Hoffman 109,400
Donald R. Jones 114,200
Shirley D. Peterson 114,000
William P. Sommers 109,400
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Fund. Deferred amounts accrue interest
monthly at a rate approximate to the yield of Zurich Money Funds --
Zurich Money Market Fund.
(2) Includes compensation for service on the Boards of 25 Scudder Kemper
funds with 43 fund portfolios. Each trustee currently serves as trustee
of 26 Scudder Kemper Funds with 48 fund portfolios.
The Independent Trustees also serve in the same capacity for other funds managed
by the Adviser. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules.
The Trustees and Officers as a group owned less than 1% of the Fund's shares as
of the commencement of operations.
SHAREHOLDER RIGHTS
The Fund is a series of Kemper Income Trust (the "Trust"), a Massachusetts
business trust established under an Agreement and Declaration of Trust of the
Trust (the "Declaration of Trust") dated August 27, 1998.
The Fund generally is not required to hold meetings of its shareholders. Under
the Declaration of Trust, however, shareholder meetings will be held in
connection with the following matters: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the adoption of any contract for
which approval by shareholders is required by the 1940 Act; (c) any termination
of the Fund or a class to the extent and as provided in the Declaration of
Trust; (d) any amendment of the Declaration of Trust (other than amendments
changing the name of the Fund, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Trust, or any registration of the Fund
with the SEC or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of trustees), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
only the Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
21
<PAGE>
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.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities as of November 25, 1998 and the Report
of Independent Auditors is filed herein.
22
<PAGE>
APPENDIX
CORPORATE BONDS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by S&P. 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.
23
<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.
24
<PAGE>
KEMPER INCOME TRUST
KEMPER HIGH YIELD FUND II
STATEMENT OF NET ASSETS -- NOVEMBER 25,1998
ASSETS
<TABLE>
<S> <C>
Cash $ 100,000
=========
NET ASSETS
Net assets, applicable to shares of beneficial interest (unlimited number
of shares authorized, $.01 par value) outstanding as follows:
Class A -- 3,508.773
Class B -- 3,508.772
Class C -- 3,508.772 $ 100,000
=========
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($33,333.34 / 3.508.773 shares outstanding) $ 9.50
Class B* ($33,333.33 / 3,508.772 shares outstanding) $ 9.50
Class C* ($33,333.33 / 3,508.772 shares outstanding) $ 9.50
Maximum offering price per share
Class A (net asset value, plus 4.71 % of net asset value or 4.50% of
offering price) $ 9.95
Class B (net asset value) $ 9.50
Class C (net asset value) $ 9.50
</TABLE>
- ------------
* Subject to contingent deferred sales charge.
Notes:
Kemper High Yield Fund II (the "Fund") is a series of Kemper Income Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940. The Trust was organized as a business trust
under the laws of Massachusetts on August 27, 1998. All Class A, Class B and
Class C shares of beneficial interest of the Fund were issued to Scudder Kemper
Investments, Inc., the investment manager, on November 25, 1998.
The costs of organization of Kemper Income Trust will be paid by Scudder Kemper
Investments, Inc.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Income Trust -
Kemper High Yield Fund II
We have audited the accompanying statement of net assets of Kemper Income Trust
- - Kemper High Yield Fund II as of November 25, 1998. This statement of net
assets is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper Income Trust - Kemper
High Yield Fund II at November 25, 1998 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 1998
<PAGE>
KEMPER INCOME TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C> <C>
a. Financial Statements
Financial Highlights to be filed by amendment:
Included in Part B of this Registration Statement:
The Statement of Assets and Liabilities of Kemper High Yield Fund II as of November 24, 1998
and the Report of Independent Auditors.
b. Exhibits:
1. Agreement and Declaration of Trust is filed herein.
2. By-laws are filed herein.
3. Inapplicable.
4. Specimen Share Certificate to be filed by amendment.
5. Investment Management Agreement dated November 30, 1998 between the
Registrant on behalf of Kemper High Yield Fund II and Scudder
Kemper Investments, Inc. is filed herein.
6. Underwriting and Distribution Services Agreement dated November 30,
1998 between the Registrant and Kemper Distributors, Inc is filed
herein.
7. Inapplicable.
8. (a)(1) Custodian Agreement to be filed by amendment.
(a)(2) Fee schedule for Exhibit 8(a)(1) to be filed by amendment.
9. (a) Agency Agreement dated November 30, 1998 between the Registrant and
Kemper Service Company is filed herein.
(b) Fund Accounting Services Agreement dated November 30, 1998 between
the Registrant on behalf of Kemper High Yield Fund II and Scudder
Fund Accounting Corporation is filed herein.
(c) Administrative Services Agreement dated November 30, 1998 between
the Registrant and Kemper Distributors, Inc. is filed herein
10. Opinion of counsel is filed herein..
11. Consent of Independent Auditors is filed herein.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable
Part C - Page 1
<PAGE>
15. Rule 12b-1 Plans are filed herein.
16. Inapplicable.
17. Inapplicable.
18. Multi-Distribution System Plan pursuant to Rule 18f-3 is filed
herein
Powers of Attorney for Trustees are filed herein.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------
None
Item 26. Number of Holders of Securities.
- -------- --------------------------------
(1) (2)
Title of Class Number of Shareholders
-------------- ----------------------
Kemper High Yield Fund II 0
Item 27. Indemnification.
- -------- ----------------
Article Tenth of Registrant's Articles of Incorporation state as
follows:
TENTH: Liability and Indemnification
- ------ -----------------------------
To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation, whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted. No amendment to these Articles of Amendment and Restatement or
repeal of any of its provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify
its directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment Company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities
Part C - Page 2
<PAGE>
indicated herein. No amendment of these Articles of Amendment and Restatement
shall impair the rights of any person arising at any time with respect to events
occurring prior to such amendment.
Nothing in these Articles of Amendment and Restatement shall be deemed
to (i) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as amended, or of
any valid rule, regulation or order of the Securities and Exchange Commission
under those Acts or (ii) protect any director or officer of the Corporation
against any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of his or her duties or by reason of his or her
reckless disregard of his or her obligations and duties hereunder.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
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 3
<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
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 29. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
Part C - Page 4
<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)
Position 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 Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer & Vice President
James J. McGovern Chief Financial Officer & Vice None
President
Linda J. Wondrack Vice President & Chief Compliance None
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 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder will be maintained by Scudder Kemper
Part C - Page 5
<PAGE>
Investments, Inc., 345 Park Avenue, New York, NY 10154.
Records relating to the duties of the Registrant's custodian
are maintained by Brown Brothers Harriman & Co.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Fund's
latest annual report to shareholders upon request and without
charge.
Part C - Page 6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/ Mark S. Casady
---------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Daniel Pierce
- --------------------------------------
Daniel Pierce* Chairman and Trustee November 24, 1998
/s/ David W. Belin
- --------------------------------------
David W. Belin* Trustee November 24, 1998
/s/ Lewis A. Burnham
- --------------------------------------
Lewis A. Burnham * Trustee November 24, 1998
/s/ Donald L. Dunaway
- --------------------------------------
Donald L. Dunaway* Trustee November 24, 1998
/s/ Robert B. Hoffman
- --------------------------------------
Robert B. Hoffman* Trustee November 24, 1998
/s/ Donald R. Jones
- --------------------------------------
Donald R. Jones* Trustee November 24, 1998
/s/ Thomas W. Littauer
- --------------------------------------
Thomas W. Littauer* Trustee and Vice President November 24, 1998
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Shirley D. Peterson
- --------------------------------------
Shirley D. Peterson* Trustee November 24, 1998
/s/ Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee and Vice President November 24, 1998
/s/ John R. Hebble
John R. Hebble Treasurer (Principal Financial and November 24, 1998
Accounting Officer)
/s/ Philip J. Collora
- --------------------------------------
Philip J. Collora Vice President and Secretary November 24, 1998
</TABLE>
*By: /s/ Mark S. Casady
------------------
Mark S. Casady
Attorney-in-Fact pursuant to powers of attorney contained
herein.
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his/her capacity as trustee or officer, or both, as the case may
be, of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk,
Philip J. Collora, Caroline Pearson and Maureen E. Kane and each of them,
severally, or if more than one acts, a majority of them, his/her true and lawful
attorney and agent to execute in his/her name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/David W. Belin Trustee November 17, 1998
- -----------------
David W. Belin
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- ---------- ----- ----
/s/Lewis A. Burnham Trustee November 17, 1998
- -------------------
Lewis A. Burnham
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Donald L. Dunaway Trustee November 17, 1998
- --------------------
Donald L. Dunaway
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Robert B. Hoffman Trustee November 17, 1998
- --------------------
Robert B. Hoffman
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Donald R. Jones Trustee November 17, 1998
- ------------------
Donald R. Jones
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Shirley D. Peterson Trustee November 17, 1998
- ----------------------
Shirley D. Peterson
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Daniel Pierce Trustee November 17, 1998
- ----------------
Daniel Pierce
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/William P. Sommers Trustee November 17, 1998
- ---------------------
William P. Sommers
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Thomas W. Littauer Trustee November 17, 1998
- ---------------------
Thomas W. Littauer
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 24th day of November, 1998.
KEMPER INCOME TRUST
By /s/Mark S. Casady
-----------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be,
of the Registrant, does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip
Collora, Caroline Pearson and Maureen Kane and each of them, severally, or if
more than one acts, a majority of them, his true and lawful attorney and agent
to execute in his name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Kathryn L. Quirk Trustee November 17, 1998
- -------------------
Kathryn L. Quirk
<PAGE>
File No. 811-08983
File No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
PRE-EFFECTIVE AMENDMENT No. 1
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT No. 1
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER INCOME TRUST
<PAGE>
KEMPER INCOME TRUST
Exhibit Index
Exhibit 1
Exhibit 2
Exhibit 5
Exhibit 6
Exhibit 9(a)
Exhibit 9(b)
Exhibit 9(c)
Exhibit 10
Exhibit 11
Exhibit 15
Exhibit 18
Exhibit 1
KEMPER INCOME TRUST
DECLARATION OF TRUST
DATED AUGUST 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
ARTICLE I.........................................................................................................1
Section 1.1. Name........................................................................................1
Section 1.2. Definitions.................................................................................1
ARTICLE II........................................................................................................3
Section 2.1. General Powers..............................................................................3
Section 2.2. Investments.................................................................................4
Section 2.3. Legal Title.................................................................................5
Section 2.4. Issuance and Repurchase of Shares...........................................................6
Section 2.5. Delegation; Committees......................................................................6
Section 2.6. Collection and Payment......................................................................6
Section 2.7. Expenses....................................................................................6
Section 2.8. Manner of Acting; By-laws...................................................................7
Section 2.9. Miscellaneous Powers........................................................................7
Section 2.10. Principal Transactions.....................................................................8
Section 2.11. Number of Trustees.........................................................................8
Section 2.12. Election and Term..........................................................................8
Section 2.13. Resignation and Removal....................................................................8
Section 2.14. Vacancies..................................................................................9
Section 2.15. Delegation of Power to Other Trustees......................................................9
Section 2.16. Shareholder Vote, etc......................................................................9
ARTICLE III......................................................................................................10
Section 3.1. Distribution Contract......................................................................10
Section 3.2. Advisory or Management Contract............................................................10
Section 3.3. Affiliations of Trustees or Officers, Etc..................................................10
Section 3.4. Compliance with 1940 Act...................................................................11
ARTICLE IV.......................................................................................................11
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.......................................11
Section 4.2. Non-Liability of Trustees, Etc.............................................................12
Section 4.3. Mandatory Indemnification..................................................................12
Section 4.4. No Bond Required of Trustees...............................................................14
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.................................14
Section 4.6. Reliance on Experts, Etc...................................................................14
ARTICLE V........................................................................................................15
Section 5.1. Beneficial Interest........................................................................15
<PAGE>
Section 5.2. Rights of Shareholders.....................................................................15
Section 5.3. Trust Only.................................................................................15
Section 5.4. Issuance of Shares.........................................................................15
Section 5.5. Register of Shares.........................................................................16
Section 5.6. Transfer of Shares.........................................................................16
Section 5.7. Notices, Reports...........................................................................16
Section 5.8. Treasury Shares............................................................................17
Section 5.9. Voting Powers..............................................................................17
Section 5.10. Meetings of Shareholders..................................................................17
Section 5.11. Series Designation........................................................................18
Section 5.12. Assent to Declaration of Trust............................................................20
Section 5.13. Class Designation.........................................................................20
ARTICLE VI.......................................................................................................21
Section 6.1. Redemption of Shares.......................................................................21
Section 6.2. Price......................................................................................21
Section 6.3. Payment....................................................................................21
Section 6.4. Effect of Suspension of Determination of Net Asset Value...................................21
Section 6.5. Repurchase by Agreement....................................................................22
Section 6.6. Redemption of Shareholder's Interest.......................................................22
Section 6.7. Redemption of Shares in Order to Qualify as Regulated Investment Company; Disclosure of
Holding............................................................................22
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net Asset Value Formula.............23
Section 6.9. Suspension of Right of Redemption..........................................................23
ARTICLE VII......................................................................................................24
Section 7.1. Net Asset Value............................................................................24
Section 7.2. Distributions to Shareholders..............................................................24
Section 7.3. Determination of Net Income; Constant Net Asset Value; Reduction of Outstanding Shares.....25
Section 7.4. Allocation Between Principal and Income....................................................26
Section 7.5. Power to Modify Foregoing Procedures.......................................................26
ARTICLE VIII.....................................................................................................26
Section 8.1. Duration...................................................................................26
Section 8.2. Termination of Trust.......................................................................26
Section 8.3. Amendment Procedure........................................................................27
Section 8.4. Merger, Consolidation and Sale of Assets...................................................28
Section 8.5. Incorporation..............................................................................28
ARTICLE IX.......................................................................................................29
<PAGE>
ARTICLE X........................................................................................................29
Section 10.1. Filing....................................................................................29
Section 10.2. Governing Law.............................................................................29
Section 10.3. Counterparts..............................................................................29
Section 10.4. Reliance by Third Parties.................................................................30
Section 10.5. Provisions in Conflict with Law or Regulations............................................30
</TABLE>
<PAGE>
DECLARATION OF TRUST
OF
KEMPER INCOME TRUST
DATED AUGUST 27, 1998
DECLARATION OF TRUST made August 27, 1998 by the Trustees (together
with all other persons from time to time duly elected, qualified and serving as
Trustees in accordance with the provisions of Article II hereof, the
"Trustees").
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
Section 1.1. Name.
------------ -----
The name of the Trust created hereby is the "Kemper Income Trust".
Section 1.2. Definitions.
------------ ------------
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8
hereof, as from time to time amended.
(b) "Class" means the two or more Classes as may be
established and designated from time to time by the Trustees
pursuant to Section 5.13 hereof.
(c) The term "Commission" has the meaning given it in the 1940
Act. The term "Interested Person" has the meaning given it in
the 1940 Act, as modified by any applicable order or orders of
the Commission. Except as otherwise defined by the Trustees in
conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares outstanding and
entitled to vote" shall have the same meaning as the term
<PAGE>
"vote of a majority of the outstanding voting securities"
given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of
the 1940 Act, but does not include a system for the central
handling of securities described in said Section 17(f).
(e) "Declaration" means this Declaration of Trust as further
amended from time to time. Reference in this Declaration of
Trust to "Declaration," "hereof," "herein," and "hereunder"
shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words
appear.
(f) "Distributor" means the party, other than the Trust, to
the contract described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as
the masculine genders.
(h) "Investment Adviser" means the party, other than the
Trust, to the contract described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on behalf
of states, territories of the United States and the District
of Columbia and their political subdivisions, agencies and
instrumentalities, or other issuers, the interest from which
is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940,
as amended from time to time.
(k) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
(l) "Series" individually or collectively means the two or
more Series as may be established and designated from time to
time by the Trustees pursuant to Section 5.11 hereof. Unless
the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a
Series, may be divided from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be
divided from time to time, including the Shares of any and all
Series and Classes which may be established by the Trustees
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<PAGE>
and includes fractions of Shares as well as whole Shares.
"Outstanding Shares" means those Shares shown as of a time and
from time to time on the books of the Trust or its Transfer
Agent as then issued and outstanding, but shall not include
Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the Treasury of the Trust.
(o) "Transfer Agent" means any one or more Persons other than
the Trust who maintains the Shareholder records of the Trust,
such as the list of Shareholders, the number of Shares
credited to each account, and the like.
(p) The "Trust" means the Kemper Income Trust.
(q) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or
for the account of the Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or have
signed this Declaration, so long as he or they shall continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly qualified and
serving as Trustees in accordance with the provisions of
Article II hereof, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in this
capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
--------
Section 2.1. General Powers.
------------ ---------------
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
3
<PAGE>
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments.
------------ ------------
The Trustees shall have the power:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate
to the conduct of such operations.
(b) To invest in, hold for investment, or reinvest in,
securities, including shares of open-end investment companies;
common and preferred stocks; warrants; bonds, debentures,
bills, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or
other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds of
repurchase agreements, of any corporation, company, trust,
association, firm or other business organization however
established, and of any country, state, municipality or other
political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to acquire any rights or
options to purchase or sell, to sell or otherwise dispose of,
to lend, and to pledge any such securities and to enter into
repurchase agreements and forward foreign currency exchange
contracts, to purchase and sell futures contracts on
securities, securities indices and foreign currencies, to
purchase or sell options on such contracts, foreign currency
contracts, and foreign currencies and to engage in all types
of hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership
or interest in all securities, repurchase agreements, futures
contracts and options and other assets included in the Trust
Property, including the right to vote thereon and otherwise
act with respect thereto and to do all acts for the
preservation, protection, improvement and enhancement in value
of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise)
any property, real or personal, including cash, and any
interest therein.
4
<PAGE>
(f) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by
mortgaging, pledging or otherwise subjecting as security the
Trust Property; to endorse, guarantee, or undertake the
performance of any obligation or engagement of any other
Person and to lend Trust Property.
(g) To aid by further investment any corporation, company,
trust, association or firm, any obligation of or interest in
which is included in the Trust Property or in the affairs of
which the Trustees have any direct or indirect interest; to do
all acts and things designed to protect, preserve, improve or
enhance the value of such obligation or interest, and to
guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other obligations of any
such corporation, company, trust, association or firm.
(h) To enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or
indirectly any activity which is primarily intended to result
in the sale of Shares.
(i) To invest, through a transfer of cash, securities and
other assets or otherwise, all or a portion of the Trust
Property, or to sell all or a portion of the Trust Property
and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
(j) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either
alone or in association with others, and to do every other act
or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title.
------------ ------------
Legal title to all the Trust Property, including the property of any
Series of the Trust, shall be vested in the Trustees as joint tenants except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
5
<PAGE>
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares.
------------ ----------------------------------
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.11 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
particular series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 2.5. Delegation; Committees.
------------ -----------------------
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment.
------------ -----------------------
The Trustees shall have power to collect all property due to the Trust;
to pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses.
------------ ---------
The Trustees shall have the power to incur and pay any expenses which
in the opinion of the Trustees are necessary or incidental to carry out any of
the purposes of this Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees.
6
<PAGE>
Section 2.8. Manner of Acting; By-laws.
------------ --------------------------
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers.
------------ ---------------------
Subject to Section 5.11 hereof, the Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent and selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
7
<PAGE>
Section 2.10. Principal Transactions.
------------- -----------------------
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or transfer agent or with any
Interested Person or such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, transfer agent, dividend disbursing agent or Custodian
upon customary terms.
Section 2.11. Number of Trustees.
------------- -------------------
The number of Trustees shall initially be one (1), and thereafter shall
be such number as shall be fixed from time to time by a written instrument
signed by a majority of the Trustees.
Section 2.12. Election and Term.
------------- ------------------
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
Except in the event of resignation or removals pursuant to Section 2.13 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders, and thereafter until
the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal.
------------- ------------------------
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. Any of
the Trustees may be removed (provided the aggregate number of Trustees after
such removal shall not be less than one) with cause, by the action of two-thirds
of the remaining Trustees. Any Trustee may be removed at any meeting of
Shareholders by vote of two-thirds of the Outstanding Shares. The Trustees shall
promptly call a meeting of the shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested in writing so
to do by the holders of not less than ten percent of the Outstanding Shares and,
in that connection, the Trustees will assist shareholder communications to the
extent provided for in Section 16(c) under the 1940 Act. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
or property of any series of the Trust held in the name of the resigning or
8
<PAGE>
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
Section 2.14. Vacancies.
------------- ----------
The term of office of a Trustee shall terminate and a vacancy shall
occur in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. In the case of
an existing vacancy, including a vacancy existing by reason of an increase in
the number of Trustees, subject to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees.
------------- --------------------------------------
Any Trustee may, by power of attorney, delegate his power for a period
not exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided.
Section 2.16. Shareholder Vote, etc. Not Required.
------------- ------------------------------------
Except to the extent specifically provided to the contrary in this
Declaration, the Trustees may exercise each of the powers granted to them in
this Declaration without the vote, approval or agreement of the Shareholders,
unless such a vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts.
9
<PAGE>
ARTICLE III
CONTRACTS
---------
Section 3.1. Distribution Contract.
------------ ----------------------
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Share, whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract.
------------ --------------------------------
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc.
------------ ------------------------------------------
The fact that:
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or
distributor of or for any partnership, corporation,
trust, association or other organization or of or for
any parent or affiliate of any organization, with
which a contract of the character described in
Sections 3.1 or 3.2 above or for services as
Custodian, Transfer Agent, accounting agent or
10
<PAGE>
disbursing agent or for related services may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is
a Shareholder of or has an interest in the Trust, or
that
(ii) any partnership, corporation, trust, association
or other organization with which a contract of the
character described in Sections 3.1 or 3.2 above or
for services as Custodian, Transfer Agent, accounting
agent or disbursing agent or for related services may
have been or may hereafter be made also has any one
or more of such contracts with one or more other
partnerships, corporations, trusts, associations or
other organizations, or has other business or
interests, shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing
the same or create any liability or accountability to
the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act.
------------ -------------------------
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
-------------------
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
------------ -----------------------------------------------------
No Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person; and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
for his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
11
<PAGE>
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc.
------------ -------------------------------
No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 4.3. Mandatory Indemnification.
------------ --------------------------
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, administrative
or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final
adjudication by a court or other body before which a
proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
his office;
12
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(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting in
a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office act on
the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person.
Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4.3 may be advanced
by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the
recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that
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there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an Interested Person of the Trust (including anyone who
has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Section 4.4. No Bond Required of Trustees.
------------ -----------------------------
No Trustee shall be obligated to give any bond or other security for
the performance of any of his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust
------------ -----------------------------------------
Instruments, Etc.
-----------------
No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc.
------------ -------------------------
Each Trustee and officer or employee of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE V
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 5.1. Beneficial Interest.
------------ --------------------
The interest of the beneficiaries hereunder shall be divided into
transferable Shares of beneficial interest, all of one class, except as provided
in Section 5.11 and Section 5.13 hereof, par value $.01 per share. The number of
Shares of beneficial interest authorized hereunder is unlimited. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
non-assessable.
Section 5.2. Rights of Shareholders.
------------ -----------------------
The ownership of the Trust Property and the property of each Series of
the Trust of every description and the right to conduct any business
herein-before described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights specifically set forth in this
Declaration. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights, except as the Trustees may determine
with respect to any Series of Shares.
Section 5.3. Trust Only.
------------ -----------
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, corporation, bailment or any form
of legal relationship other than a trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 5.4. Issuance of Shares.
------------ -------------------
The Trustees in their discretion may, from time to time without vote of
the Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
15
<PAGE>
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths
of a Share or integral multiples thereof.
Section 5.5. Register of Shares.
------------ -------------------
A register shall be kept at the principal office of the Trust or an
office of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares.
------------ -------------------
Except as otherwise provided by the Trustees, shares shall be
transferable on the records of the Trust only by the record holder thereof or by
his agent thereunto duly authorized, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports.
------------ -----------------
Any and all notices to which any Shareholder may be entitled and any
and all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be sent to a Shareholder
16
<PAGE>
(i) if an annual report and a proxy statement for two consecutive shareholder
meetings have been mailed to such Shareholder's address and have been returned
as undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of dividends on Shares during a twelve-month period have been
mailed to such Shareholder's address and have been returned as undeliverable or
(iii) in any other case in which a proxy statement concerning a meeting of
security holders is not required to be given pursuant to the Commission's proxy
rules as from time to time in effect under the Securities Exchange Act of 1934.
However, delivery of such proxy statements, annual reports and other
communications shall resume if and when such Shareholder delivers or causes to
be delivered to the Trust written notice setting forth such Shareholder's then
current address.
Section 5.8. Treasury Shares.
------------ ----------------
Shares held in the treasury shall, until reissued pursuant to Section
5.4, not confer any voting rights on the Trustees, nor shall such Shares be
entitled to any dividends or other distributions declared with respect to the
Shares.
Section 5.9. Voting Powers.
------------ --------------
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.12; (ii) for the removal of Trustees as
provided in Section 2.13; (iii) with respect to any amendment of this
Declaration to the extent and as provided in Section 8.3; (iv) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class thereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to bring a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); and (v) with respect to
such additional matters relating to the Trust as may be required by this
Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to bring a proportionate fractional vote,
except that the Trustees may, in conjunction with the establishment of any
Series or Class of Shares, establish or reserve the right to establish
conditions under which the several Series or Classes shall have separate voting
rights or no voting rights. There shall be no cumulative voting in the election
of Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration or the
By-laws to be taken by Shareholders. The By-laws may include further provisions
for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders.
------------- -------------------------
Meetings of Shareholders may be called at any time by the President,
and shall be called by the President and Secretary at the request in writing or
by resolution, of a majority of Trustees, or at the written request of the
17
<PAGE>
holder or holders of ten percent (10%) or more of the total number of Shares
then issued and outstanding of the Trust entitled to vote at such meeting. Any
such request shall state the purpose of the proposed meeting.
Section 5.11. Series Designation.
------------- -------------------
The Trustees, in their discretion, may authorize the division of Shares
into two or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different Series as to investment objective, purchase
price, allocation of expenses, right of redemption, special and relative rights
as to dividends and on liquidation, conversion rights, and conditions under
which the several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all Series as
the context may require.
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context
requires otherwise.
(b) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series into one
or more Series that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the
same or some other Series), reissue for such consideration and
on such terms as they may determine, or cancel any Shares of
any Series reacquired by the Trust at their discretion from
time to time.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors of such Series and
except as may otherwise be required by applicable laws, and
shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular
Series, the Trustees shall allocate them among any one or more
of the Series established and designated from time to time in
such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation by
the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
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(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that
Series and with all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees to and among
any one or more of the Series established and designated from
time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Series for all purposes. The Trustees
shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items are capital; and
each such determination and allocation shall be conclusive and
binding upon the Shareholders. The assets of a particular
Series of the Trust shall, under no circumstances, be charged
with liabilities attributable to any other Series of the
Trust. All persons extending credit to, or contracting with or
having any claim against a particular Series of the Trust
shall look only to the assets of that particular Series for
payment of such credit, contract or claim. No Shareholder or
former Shareholder of any Series shall have any claim on or
right to any assets allocated or belonging to any other
Series.
(e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each
holder of Shares of a Series shall be entitled to receive his
pro rata share of distributions of income and capital gains
made with respect to such Series, except as provided in
Section 5.13 hereof. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his
being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property
of such Series of the Trust. Upon liquidation or termination
of a Series of the Trust, Shareholders of such Series shall be
entitled to receive a pro rata share of the net assets of such
Series, except as provided in Section 5.13 hereof. A
Shareholder of a particular Series of the Trust shall not be
entitled to participate in a derivative or class action on
behalf of any other Series or the Shareholders of any other
Series of the Trust.
(f) The establishment and designation of any Series of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such
instrument. The Trustees may by an instrument executed by a
majority of their number abolish any Series and the
establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power
to determine the designations, preferences, privileges,
limitations and rights, of each class and Series of Shares.
Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
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Section 5.12. Assent to Declaration of Trust.
------------- -------------------------------
Every Shareholder, by virtue of having become a shareholder, shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto.
Section 5.13. Class Designation.
------------- ------------------
The Trustees, in their discretion, may authorize the division of the
Shares of the Trust, or, if any Series be established, the Shares of any Series,
into two or more Classes, and the different Classes shall be established and
designated, and the variations in the relative rights and preferences as between
the different Classes shall be fixed and determined, by the Trustees; provided,
that all Shares of the Trust or of any Series shall be identical to all other
Shares of the Trust or the same Series, as the case may be, except that there
may be variations between different Classes as to allocation of expenses, right
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust or any Series into two or
more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series
of the Trust, shall apply equally to each Class of Shares of
the Trust or of any Series of the Trust, except as the context
requires otherwise.
(b) The number of Shares of each Class that may be issued
shall be unlimited. The Trustees may classify or reclassify
any Shares or any Series of any Shares into one or more
Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or
some other Class), reissue for such consideration and on such
terms as they may determine, or cancel any Shares of any Class
reacquired by the Trust at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related
to the distribution of, and other identified expenses that
should properly be allocated to, the Shares of a particular
Class may be charged to and borne solely by such Class and the
bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the
Trustees) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation
rights of, the Shares of different classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders
of all Classes for all purposes.
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<PAGE>
(d) The establishment and designation of any Class of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such
instrument. The Trustees may, by an instrument executed by a
majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------
Section 6.1. Redemption of Shares.
------------ ---------------------
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified
written application of the record holder thereof (or upon such other form of
request as the Trustees may determine) at such office or agency as may be
designated from time to time for that purpose in the Trust's then effective
registration statement under the Securities Act of 1933. The Trustees may from
time to time specify additional conditions, not inconsistent with the 1940 Act,
regarding the redemption of Shares in the Trust's then effective registration
statement under the Securities Act of 1933.
Section 6.2. Price.
------------ ------
Shares shall be redeemed at their net asset value, which may be reduced
by any redemption fee authorized by the Trustees, determined as set forth in
Section 7.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 7.1 hereof after receipt of such application.
Section 6.3. Payment.
------------ --------
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset
------------ --------------------------------------------------
Value.
------
If, pursuant to Section 6.9 hereof, the Trustees shall declare a
suspension of the determination of net asset value, the rights of Shareholders
(including those who shall have applied for redemption pursuant to Section 6.1
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hereof but who shall not yet have received payment) to have Shares redeemed and
paid for by the Trust shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right so
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any certificates on
deposit. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Section 7.1 after the termination of such suspension, and payment
shall be made within seven (7) days after the date upon which the application
was made plus the period after such application during which the determination
of net asset value was suspended.
Section 6.5. Repurchase by Agreement.
------------ ------------------------
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the net asset value per Share determined as of the time
when the purchase or contract of purchase is made or the net asset value as of
any time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
Section 6.6. Redemption of Shareholder's Interest.
------------ -------------------------------------
The Trust shall have the right at any time without prior notice to the
Shareholder to redeem Shares of any Shareholder for their then current net asset
value per Share if
(a) at such time the Shareholder owns Shares having an
aggregate net asset value of less than an amount set from time
to time by the Trustees subject to such terms and conditions
as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail
itself of such right, either by publication in the Trust's
registration statement, if any, or by such other means as the
Trustees may determine, or
(b) The Trustees believe that it is in the best interest of
the Trust to do so because of prior involvement by the
Shareholder in fraudulent acts relating to securities
transactions.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
------------ -----------------------------------------------------
Investment Company; Disclosure of Holding.
-----------------------------------------
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other means deemed
22
<PAGE>
equitable by them (i) to call for redemption by any such Person a number, or
principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant
------------ ---------------------------------------------------
to Net Asset Value Formula.
---------------------------
The Trust may also reduce the number of Outstanding Shares pursuant to
the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption.
------------ ----------------------------------
The Trust may declare a suspension of the right of redemption or
postpone the date of payment or redemption for the whole or any part of any
period (i) during which the New York Stock Exchange is closed other than
customary week-end and holiday closings, (ii) during which trading on the New
York Stock Exchange is restricted, (iii) during which an emergency exists as a
result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or (iv) during any other period when
the Commission may for the protection of Shareholders of the Trust by order
permit suspension of the right of redemption or postponement of the date of
payment or redemption; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (ii), (iii),
or (iv) exist. Such suspension shall take effect at such time as the Trust shall
specify but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be no right
of redemption or payment on redemption until the Trust shall declare the
suspension at an end, except that the suspension shall terminate in any event on
the first day on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which in the absence of an
official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
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<PAGE>
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
Section 7.1. Net Asset Value.
------------ ----------------
The value of the assets of the Trust or any Series of the Trust shall
be determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing the net asset value
of the Class, or, if no Class has been established, of the Series, or, if no
Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Shares
shall be determined at least once on each business day, as of the close of
trading on the New York Stock Exchange or as of such other time or times as the
Trustees shall determine. The power and duty to make the daily calculations may
be delegated by the Trustees to the Investment Adviser, the Custodian, the
Transfer Agent or such other Person as the Trustees may determine by resolution
or by approving a contract which delegates such duty to another Person. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders.
------------ ------------------------------
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets of the Trust or such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of the Trust or such Series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of the Trust or such
Series issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding day if the distribution is
24
<PAGE>
declared as of a day on which Boston banks are not open for business, all as
described in the registration statement under the Securities Act of 1933. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or the Series or to meet
obligations of the Trust or the Series, or as they may deem desirable to use in
the conduct of its affairs or to retain for future requirements or extensions of
the business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate. The above provisions may be modified to the extent
required by a plan adopted by the Trustees to establish Classes of Shares of the
Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset
------------ -----------------------------------------------
Value; Reduction of Outstanding Shares.
---------------------------------------
Subject to Section 5.11 and Section 5.13 hereof, the net income of the
Trust or any Series shall be determined in such manner as the Trustees shall
provide by resolution. Expenses of the Trust or a Series, including the advisory
or management fee, shall be accrued each day. Such net income may be determined
by or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such Exchange is open or as of such
other time or times as the Trustees shall determine, and, except as provided
herein, all the net income of the Trust or any Series, as so determined, may be
declared as a dividend on the Outstanding Shares of the Trust or such Series.
If, for any reason, the net income of the Trust or any Series, determined at any
time is a negative amount, the Trustees shall have the power with respect to the
Trust or such Series (i) to offset each Shareholder's pro rata share of such
negative amount from the accrued dividend account of such Shareholder, or (ii)
to reduce the number of Outstanding Shares of the Trust or such Series by
reducing the number of Shares in the account of such Shareholder by that number
of full and fractional Shares which represents the amount of such excess
negative net income, or (iii) to cause to be recorded on the books of the Trust
or such Series an asset account in the amount of such negative net income, which
account may be reduced by the amount, provided that the same shall thereupon
become the property of the Trust or such Series with respect to the Trust or
such Series and shall not be paid to any Shareholder, of dividends declared
thereafter upon the Outstanding Shares of the Trust or such Series on the day
such negative net income is experienced, until such asset account is reduced to
zero; or (iv) to combine the methods described in clauses (i) and (ii) and (iii)
of this sentence, in order to cause the net asset value per Share of the Trust
or such Series to remain at a constant amount per Outstanding Share immediately
after each such determination and declaration. The Trustees shall also have the
power to fail to declare a dividend out of net income for the purpose of causing
the net asset value per Share to be increased to a constant amount. The Trustees
25
<PAGE>
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the net asset value per Share of the Trust or a
Series at a constant amount.
Section 7.4. Allocation Between Principal and Income.
------------ ----------------------------------------
The Trustees shall have full discretion to determine whether any cash
or property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal amount, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures.
------------ -------------------------------------
Notwithstanding any of the foregoing provisions of this Article VII,
the Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the per Share net asset value or net income, or the
declaration and payment of dividends and distributions as they may deem
necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
------------------------
Section 8.1. Duration.
------------ ---------
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
Section 8.2. Termination of Trust.
------------ ---------------------
(a) The Trust or any Series of the Trust may be terminated by
an instrument in writing signed by a majority of the Trustees,
or by the affirmative vote of the holders of a majority of the
Shares of the Trust or Series outstanding and entitled to vote
at any meeting of Shareholders. Upon the termination of the
Trust or any Series,
(i) the Trust or any Series shall carry on no
business except for the purpose of winding up its
affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust or Series and all of the powers
of the Trustees under this Declaration shall continue
until the affairs of the Trust or Series shall have
been wound up, including the power to fulfill or
discharge the contracts of the Trust or Series,
collect its assets, sell, convey, assign, exchange,
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<PAGE>
transfer or otherwise dispose of all or any part of
the remaining Trust Property or property of the
Series to one or more persons at public or private
sale for consideration which may consist in whole or
in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as
they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property
or property of the Series, in cash or in kind or
partly each, among the Shareholders of the Trust or
Series according to their respective rights.
(b) After termination of the Trust or any Series and
distribution to the Shareholders as herein provided, a
majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth
the fact of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders of
the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
------------ --------------------
(a) This Declaration may be amended by a vote of the holders
of a majority of the Shares outstanding and entitled to vote.
Amendments shall be effective upon the taking of action as
provided in this section or at such later time as shall be
specified in the applicable vote or instrument. The Trustees
may also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable federal or state
laws or regulations or the requirements of the regulated
investment company provisions of the Internal Revenue Code
(including those provisions of such Code relating to the
retention of the exemption from federal income tax with
respect to dividends paid by the Trust out of interest income
received on Municipal Bonds), but the Trustees shall not be
liable for failing so to do. The Trustees may also amend this
Declaration without the vote or consent of Shareholders if
they deem it necessary or desirable to change the name of the
Trust, to supply any omission, to cure, correct or supplement
any ambiguous, defective or inconsistent provision hereof, or
to make any other changes in the Declaration which do not
materially adversely affect the rights of Shareholders
hereunder.
(b) No amendment may be made under this Section 8.3 which
would change any rights with respect to any Shares of the
Trust or Series by reducing the amount payable thereon upon
liquidation of the Trust or Series or by diminishing or
eliminating any voting rights pertaining thereto, except with
the vote or consent of the holders of two-thirds of the Shares
of the Trust or Series outstanding and entitled to vote.
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<PAGE>
Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by
the Shareholders or by the Trustees as aforesaid or a copy of
the Declaration, as amended, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets.
------------ -----------------------------------------
The Trust or any Series thereof may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of any
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized by an instrument in writing signed by a
majority of the Trustees.
Section 8.5. Incorporation.
------------ --------------
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
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<PAGE>
ARTICLE IX
REPORTS TO SHAREHOLDERS
-----------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1. Filing.
------------- -------
This Declaration and any amendment hereto shall be filed in the office
of the Secretary of the Commonwealth of Massachusetts and in such other places
as may be required under the laws of the Commonwealth of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law.
------------- --------------
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts.
------------- -------------
This Declaration may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
29
<PAGE>
Section 10.4. Reliance by Third Parties.
------------- --------------------------
Any certificate executed by an individual who, according to the records
of the Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
------------- -----------------------------------------------
The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
30
<PAGE>
If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
27th day of August, 1998.
------------------------------------
Caroline Pearson, as Trustee and not Individually
Two International Place, 10th floor
Boston, Massachusetts 02110
31
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk August 27, 1998
Then personally appeared the above-named Caroline Pearson who
acknowledged the foregoing instrument to be her free act and deed.
Before me,
------------------------------
Notary Public
My commission expires: __________
Exhibit (2)
BY-LAWS
OF
KEMPER INCOME TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of Kemper Income Trust dated August 27,
1998, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within The Commonwealth as the Trustees from time to
time may determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Declaration at such place within or without The Commonwealth of
Massachusetts as the Trustees
<PAGE>
shall designate. The holders of one-third of the outstanding Shares present in
person or by proxy shall constitute a quorum at any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his/her address as recorded
on the register of the Trust mailed at least ten (10) days and not more than
ninety (90) days before the meeting. Only the business stated in the notice of
the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who should have failed to inform the Trust of his/her current
address, if notice is not required by the Declaration, or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his/her
attorney thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust.
2
<PAGE>
Only Shareholders of record shall be entitled to vote. Each whole share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he/she may vote by his/her guardian or such other person appointed or having
such control, and such vote may be given in person or by proxy.
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by
3
<PAGE>
the Chairperson, or by any one of the Trustees, at the time being in office.
Notice of the time and place of each meeting other than regular or stated
meetings shall be given by the Secretary or an Assistant Secretary or by the
officer or Trustee calling the meeting and shall be mailed to each Trustee at
least two days before the meeting, or shall be telegraphed, cabled, sent by
facsimile or electronic mail, or other communication leaving a visual record to
each Trustee at his/her business address, or personally delivered to him/her at
least one day before the meeting. Such notice may, however, be waived by any
Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him/her before or after the meeting, is filed with
the records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him/her. A
notice or waiver of notice need not specify the purpose of any meeting. Meetings
can be held in conjunction with investment companies having the same investment
adviser or an affiliated investment adviser. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have been
present at a place designated by the Trustees at the meeting. Any action
required or permitted to be taken at any meeting of the Trustees may be taken by
the Trustees without a meeting if all the Trustees consent to the action in
writing and the written consents are filed with the records of the Trustees'
meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-Laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the
4
<PAGE>
Trustees present may adjourn the meeting from time to time until a quorum shall
be present. Notice of an adjourned meeting need not be given.
ARTICLE IV.A.
HONORARY TRUSTEES
Section 1. Number; Qualification; Term: The Trustees may from time to
time designate and appoint one or more qualified persons to the position of
"honorary trustee." Each honorary trustee shall serve for such term as shall be
specified in the resolution of the Trustees appointing him or her until his or
her earlier resignation or removal. An honorary trustee may be removed from such
position with or without cause by the vote of a majority of the Trustees given
at any regular meeting or special meeting of the Board.
Section 2. Duties; Remuneration: An honorary trustee shall be invited
to attend all meetings of the Trustees but shall not be present at any portion
of a meeting from which the honorary trustee shall have been excluded by vote of
the Trustees. An honorary trustee shall not be a "Trustee" or "officer" within
the meaning of the Trust's Declaration of Trust or of these By-Laws, shall not
be deemed to be a member of an "advisory board" within the meaning of the
Investment Company Act of 1940, as amended from time to time, shall not hold
himself or herself out as any of the foregoing, and shall not be liable to any
person for any act of the Trust. Notice of special meetings may be given to an
honorary trustee but the failure to give such notice shall not affect the
validity of any meeting or the action taken thereat. An honorary trustee shall
not have the powers of a Trustee, may not vote at meetings of the Trustees and
shall not take part in the operation or governance of the Trust. An honorary
trustee shall not receive any compensation but may, in the discretion of the
Trustees, be reimbursed for expenses incurred in attending meetings of the
Trustees or otherwise.
5
<PAGE>
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a Chairperson of any such Committee. In the
absence of such designation, the Committee may elect its own Chairperson.
Section 2. Meetings, Quorum and Manner Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, and (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting. Unless otherwise specified by the Trustees, the members of a
Committee may meet by means of a telephone conference circuit.
6
<PAGE>
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents. The Trustees by vote of a
majority of all the Trustees may elect, but shall not be required to elect, from
their own number a Chairperson and Vice-Chairperson of the Trustees.
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall each hold office until his/her successor shall have been
duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and Treasurer may be the same person. An
Executive Vice President or Vice President and the Treasurer or Assistant
Treasurer or an Executive Vice President or a Vice President and the Secretary
or Assistant Secretary may be the same person, but the offices of Executive Vice
President or Vice President and Secretary and Treasurer shall not be held by the
same person. The President shall hold no other office. Except as above provided,
any two offices may be held by the same person. Any officer may be, but none
need be, a Trustee or Shareholder.
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Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer without cause, by a vote of a majority of
the Trustees then in office. Any officer or agent appointed by an officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
Section 4. Chairperson of Board. The Chairperson of the Board, if there
be such an officer, shall be the senior officer of the Trust, preside at all
shareholders' meetings and at all meetings of the Board of Trustees, and shall
be ex officio a member of all committees of the Board of Trustees. The
Chairperson of the Board shall also call meetings of the Trustees and of any
committee thereof when he/she deems it necessary. He/She shall have such other
powers and perform such other duties as may be assigned to him/her from time to
time by the Board of Trustees.
Section 5. Vice-Chairperson of the Board. The Vice-Chairperson of the
Board, if there be such an officer, shall, in the absence of the Chairperson,
preside at all shareholders' meetings and at all meetings of the Board of
Trustees and shall have such powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Trustees.
Section 6. Powers and Duties of the President. The President, in the
absence of the Chairperson and Vice Chairperson, if any, may call meetings of
the Trustees and of any Committee thereof when he/she deems it necessary and, in
the absence of the Chairperson and Vice-Chairperson, if any, may preside at all
meetings of the Shareholders and at all meetings of the Trustees. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he/she shall at
all times exercise a general supervision and direction over the affairs of the
Trust. He/She shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as he/she
may find necessary to transact the business of the Trust.
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He/She shall also have the power to grant, issue, execute or sign such powers of
attorney, proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust. The President shall have such other
powers and duties, as from time to time may be conferred upon or assigned to
him/her by the Trustees.
Section 7. Powers and Duties of Executive Vice Presidents and Vice
Presidents. In the absence or disability of the President, the Executive Vice
President or, if there be more than one Executive Vice President, any Executive
Vice President designated by the Trustees shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. In the event no Executive Vice President is able so to serve, the Vice
President or, if there be more than one Vice President, any Vice President
designated by the Trustees shall perform all the duties and may exercise any of
the powers of the President, subject to the control of the Trustees. Each
Executive Vice President and Vice President shall perform such duties as may be
assigned to him/her from time to time by the Trustees and the President.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. He/She shall
deliver all funds of the Trust which may come into his/her hands to such
Custodian as the Trustees may employ pursuant to Article X of these By-Laws.
He/She shall render a statement of condition of the finances of the Trust to the
Trustees as often as they shall require the same and he/she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him/her by the Trustees. The Treasurer
shall give a bond for the faithful discharge of his/her duties, if required so
to do by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose;
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he/she shall have custody of the seal of the Trust; he/she shall have charge of
the Share transfer books, lists and records unless the same are in the charge of
the Transfer Agent. He/She shall attend to the giving and serving of all notices
by the Trust in accordance with the provisions of these By-Laws and as required
by law; and subject to these By-Laws, he/she shall in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him/her by the Trustees.
Section 10. Powers and Duties of Assistant Treasurers. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him/her by the Trustees. Each Assistant
Treasurer shall give a bond for the faithful discharge of his/her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him/her by the Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he/she is also a Trustee.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be as specified from time to time by
the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by facsimile or other communication leaving a
visual record for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or facsimile or other such communications
company with instructions that it be telegraphed, cabled, sent by facsimile or
electronic mail or other communication leaving a visual record.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities
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and similar investments included in the Trust Property. The Custodian (and any
sub-custodian) shall be a bank meeting the requirements of a custodian of assets
of a registered management investment company prescribed in the 1940 Act and the
rules and orders thereunder, and shall be appointed from time to time by the
Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Agreement. Upon termination of a
Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated.
Section 3. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian or a sub-custodian to deposit all or any part of the securities owned
by the Trust in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with Commission under the Securities Exchange Act of 1934, or such other person
as may be permitted by the Commission, or otherwise in accordance with the 1940
Act and the rules and orders thereunder, pursuant to which system all securities
of any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or its
Custodian.
Section 4. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the
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Board of Governors of the Federal Reserve System and the local Federal Reserve
Banks in lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) the Trustees, provided, however, that no By-Law may
be amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what time and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
laws or authorized by the Trustees or by resolution of the Shareholders.
13
Exhibit (5)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Income Trust
222 South Riverside Plaza
Chicago, Illinois 60606
November 30, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper High Yield Fund II
Ladies and Gentlemen:
Kemper Income 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 High Yield Fund II
(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 August 27, 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 August 27, 1998 relating to the Fund.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended (the "Code") relating to regulated
investment companies and all rules and regulations
<PAGE>
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
<PAGE>
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.65 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250,000, the fee payable for that month based on the portion of
the average of such values in excess of $250,000 shall be 1/12 of 0.62 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $999,999, the fee payable for that month based on
the portion of the average of such values in excess of $999,999 shall be 1/12 of
0.60 of 1 percent of such portion; provided that, for any calendar month during
which the average of such values exceeds $2,499,999, the fee payable for that
month based on the portion of the average of such values in excess of $2,499,999
shall be 1/12 of 0.58 of 1
3
<PAGE>
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $4,999,999, the fee payable for that month based
on the portion of the average of such values in excess of $4,999,999 shall be
1/12 of 0.55 of 1 percent of such portion; provided that, for any calendar month
during which the average of such values exceeds $7,499,999, the fee payable for
that month based on the portion of the average of such values in excess of
$7,499,999 shall be 1/12 of 0.53 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$9,999,999, the fee payable for that month based on the portion of the average
of such values in excess of $9,999,999 shall be 1/12 of 0.51 of 1 percent of
such portion; provided that, for any calendar month during which the average of
such values exceeds $12,499,999, the fee payable for that month based on the
portion of the average of such values in excess of $12,499,999 shall be 1/12 of
0.49 of 1 percent of such portion; over any compensation waived by you from time
to time (as more fully described below). You shall be entitled to receive during
any month such interim payments of your fee hereunder as you shall request,
provided that no such payment shall exceed 75 percent of the amount of your fee
then accrued on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of 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
4
<PAGE>
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, 2000, 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 Income
Trust" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting 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.
5
<PAGE>
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 INCOME TRUST, on behalf of
Kemper High Yield Fund II
By:/s/Mark S. Casady
--------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Cornelia M. Small
------------------------
6
Exhibit (6)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 30th day of November, 1998, between KEMPER INCOME
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 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.
<PAGE>
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 Rule 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.
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
2
<PAGE>
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 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.
<PAGE>
8. This Agreement shall become effective on the date hereof and shall
continue until
3
<PAGE>
September 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.
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 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
4
<PAGE>
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.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER INCOME TRUST ATTEST:
By: /s/Mark S. Casady
----------------------- ---------------------------
Mark S. Casady Title:
President
KEMPER DISTRIBUTORS, INC. ATTEST:
By: /s/James L. Greenawalt
----------------------- ---------------------------
Title: Title:
5
Exhibit 9(a)
AGENCY AGREEMENT
AGREEMENT dated the 30th day of November, 1998, by and between KEMPER INCOME
TRUST, a Massachusetts business trust ("Fund"), and KEMPER SERVICE COMPANY, a
Delaware corporation ("Service Company").
WHEREAS, Fund wants to appoint Service Company as Transfer Agent and Dividend
Disbursing Agent, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Documents to be Filed with Appointment. In connection with the
appointment of Service Company as Transfer Agent and Dividend Disbursing Agent
for Fund, there will be filed with Service Company the following documents:
A. A certified copy of the resolutions of the Board of Trustees of
Fund appointing Service Company as Transfer Agent and Dividend
Disbursing Agent, approving the form of this Agreement, and
designating certain persons to give written instructions and
requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of Trust of Fund
and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the Securities and
Exchange Commission.
E. Specimens of all forms of outstanding share certificates as
approved by the Board of Trustees of Fund, with a certificate of
the Secretary of Fund as to such approval.
F. Specimens of the signatures of the officers of the Fund authorized
to sign share certificates and individuals authorized to sign
written instructions and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and existence under the
laws of The Commonwealth of Massachusetts.
(2) With respect to the status of all shares of Fund covered by
this appointment under the Securities Act of 1933, and any
other applicable federal or state statute.
(3) To the effect that all issued shares are, and all unissued
shares will be when issued, validly issued, fully paid and
non-assessable.
<PAGE>
2. Certain Representations and Warranties of Service Company. Service
Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Certificate of
Incorporation and Bylaws to enter into and perform the services
contemplated in this Agreement.
D. All requisite corporate action has been taken to authorize it to
enter into and perform this Agreement.
E. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
F. It is, and will continue to be, registered as a transfer agent under
the Securities Exchange Act of 1934.
3. Certain Representations and Warranties of Fund. Fund represents and
warrants to Service Company that:
A. It is a business trust duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
B. It is an investment company registered under the Investment Company
Act of 1940.
C. A registration statement under the Securities Act of 1933 has been
filed and will be effective with respect to all shares of Fund
being offered for sale at any time and from time to time.
D. All requisite steps have been or will be taken to register Fund's
shares for sale in all applicable states, including the District
of Columbia.
E. Fund and its Trustees are empowered under applicable laws and by
the Fund's Agreement and Declaration of Trust and Bylaws to enter
into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, Fund hereby
employs and appoints Service Company as Transfer Agent and Dividend Disbursing
Agent effective the date hereof.
B. Service Company hereby accepts such employment and appointment and
agrees that it will act as Fund's Transfer Agent and Dividend Disbursing Agent.
Service Company agrees that it will also act as
2
<PAGE>
agent in connection with Fund's periodic withdrawal payment accounts and other
open-account or similar plans for shareholders, if any.
C. Service Company agrees to provide the necessary facilities,
equipment and personnel to perform its duties and obligations hereunder in
accordance with industry practice.
D. Fund agrees to use all reasonable efforts to deliver to Service
Company in Kansas City, Missouri, as soon as they are available, all its
shareholder account records.
E. Subject to the provisions of Sections 20 and 21 hereof, Service
Company agrees that it will perform all the usual and ordinary services of
Transfer Agent and Dividend Disbursing Agent and as agent for the various
shareholder accounts, including, without limitation, the following: issuing,
transferring and canceling share certificates, maintaining all shareholder
accounts, preparing shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses, withholding
federal income taxes, preparing and mailing checks for disbursement of income
and capital gains dividends, preparing and filing all required U.S. Treasury
Department information returns for all shareholders, preparing and mailing
confirmation forms to shareholders and dealers with respect to all purchases and
liquidations of Fund shares and other transactions in shareholder accounts for
which confirmations are required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions of Fund shares and preparing
and mailing checks for payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder by Service
Company as Transfer Agent and Dividend Disbursing Agent, Fund will pay to
Service Company from time to time compensation as agreed upon for all services
rendered as Agent, and also, all its reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency. Such compensation will be
set forth in a separate schedule to be agreed to by Fund and Service Company.
The initial agreement regarding compensation is attached as Exhibit A.
B. Fund agrees to promptly reimburse Service Company for all reasonable
out-of-pocket expenses or advances incurred by Service Company in connection
with the performance of services under this Agreement including, but not limited
to, postage (and first class mail insurance in connection with mailing share
certificates), envelopes, check forms, continuous forms, forms for reports and
statements, stationery, and other similar items, telephone and telegraph charges
incurred in answering inquiries from dealers or shareholders, microfilm used
each year to record the previous year's transactions in shareholder accounts and
computer tapes used for permanent storage of records and cost of insertion of
materials in mailing envelopes by outside firms. Service Company may, at its
option, arrange to have various service providers submit invoices directly to
the Fund for payment of out-of-pocket expenses reimbursable hereunder.
6. Efficient Operation of Service Company System. 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:
3
<PAGE>
(1) The accuracy of the entries in Service Company's records
reflecting purchase and redemption orders and other instructions
received by Service Company from dealers, shareholders, Fund or
its principal underwriter.
(2) The timely availability and the accuracy of shareholder lists,
shareholder account verifications, confirmations and other
shareholder account information to be produced from Service
Company's records or data.
(3) The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from Fund.
(4) The accuracy of redemption transactions and payments in accordance
with redemption instructions received from dealers, shareholders
or Fund or other authorized persons.
(5) The deposit daily in Fund's appropriate special bank account of
all checks and payments received from dealers or shareholders for
investment in shares.
(6) The requiring of proper forms of instructions, signatures and
signature guarantees and any necessary documents supporting the
rightfulness of transfers, redemptions and other shareholder
account transactions, all in conformance with Service Company's
present procedures with such changes as may be deemed reasonably
appropriate by Service Company or as may be reasonably approved by
or on behalf of Fund.
(7) The maintenance of a current duplicate set of Fund's essential or
required records, as agreed upon from time to time by Fund and
Service Company, at a secure distant location, in form available
and usable forthwith in the event of any breakdown or disaster
disrupting its main operation.
7. Indemnification.
A. Fund shall indemnify and hold Service Company harmless from and
against any and all claims, actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to any action or omission by Service Company pursuant to this Agreement or in
connection with the agency relationship created by this Agreement, provided that
Service Company has acted in good faith, without negligence and without willful
misconduct.
B. Service Company shall indemnify and hold Fund harmless from and
against any and all claims, actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to any action or omission by Service Company pursuant to this Agreement or in
connection with the agency relationship created by this Agreement, provided that
Service Company has not acted in good faith, without negligence and without
willful misconduct.
C. In order that the indemnification provisions contained in this
Section 7 shall apply, upon the assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
4
<PAGE>
indemnification hereunder, the party seeking indemnification (the "Indemnitee")
shall promptly notify the Indemnifying Party of such assertion, and shall keep
such party advised with respect to all developments concerning such claim. The
Indemnifying Party shall be entitled to assume control of the defense and the
negotiations, if any, regarding settlement of the claim. If the Indemnifying
Party assumes control, the Indemnitee shall have the option to participate in
the defense and negotiations of such claim at its own expense. The Indemnitee
shall in no event confess, admit to, compromise, or settle any claim for which
the Indemnifying Party may be required to indemnify it except with the prior
written consent of the Indemnifying Party, which shall not be unreasonably
withheld.
8. Certain Covenants of Service Company and Fund.
A. All requisite steps will be taken by Fund from time to time when and
as necessary to register the Fund's shares for sale in all states in which
Fund's shares shall at the time be offered for sale and require registration. If
at any time Fund receives notice of any stop order or other proceeding in any
such state affecting such registration or the sale of Fund's shares, or of any
stop order or other proceeding under the Federal securities laws affecting the
sale of Fund's shares, Fund will give prompt notice thereof to Service Company.
B. Service Company hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to Fund for safekeeping of share
certificates, check forms, and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices. Further, Service Company agrees to carry insurance, as
specified in Exhibit B hereto, with insurers reasonably acceptable to Fund and
in minimum amounts that are reasonably acceptable to Fund, which will not be
changed without the consent of Fund, which consent shall not be unreasonably
withheld, and which will be expanded in coverage or increased in amounts from
time to time if and when reasonably requested by Fund. If Service Company
determines that it is unable to obtain any such insurance upon commercially
reasonable terms, it shall promptly so advise Fund in writing. In such event,
Fund shall have the right to terminate this Agreement upon 30 days notice.
C. To the extent required by Section 31 of the Investment Company Act
of 1940 and Rules thereunder, Service Company agrees that all records maintained
by Service Company relating to the services to be performed by Service Company
under this Agreement are the property of Fund and will be preserved and will be
surrendered promptly to Fund on request.
D. Service Company agrees to furnish Fund semi-annual reports of its
financial condition, consisting of a balance sheet, earnings statement and any
other reasonably available financial information reasonably requested by Fund.
The annual financial statements will be certified by Service Company's certified
public accountants.
E. Service Company represents and agrees that it will use all
reasonable efforts to keep current on the trends of the investment company
industry relating to shareholder services and will use all reasonable efforts to
continue to modernize and improve its system without additional cost to Fund.
F. Service Company will permit Fund and its authorized representatives
to make periodic inspections of its operations at reasonable times during
business hours.
5
<PAGE>
G. If Service Company is prevented from complying, either totally or in
part, with any of the terms or provisions of this Agreement, by reason of fire,
flood, storm, strike, lockout or other labor trouble, riot, war, rebellion,
accidents, acts of God, equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the reasonable control of Service
Company, whether similar to the foregoing matters or not, then upon written
notice to Fund, the requirements of this Agreement that are affected by such
disability, to the extent so affected, shall be suspended during the period of
such disability; provided, however, that Service Company shall make reasonable
effort to remove such disability as soon as possible. During such period, Fund
may seek alternate sources of service without liability hereunder; and Service
Company will use all reasonable efforts to assist Fund to obtain alternate
sources of service. Service Company shall have no liability to Fund for
nonperformance because of the reasons set forth in this Section 8.G; but if a
disability that, in Fund's reasonable belief, materially affects Service
Company's ability to perform its obligations under this Agreement continues for
a period of 30 days, then Fund shall have the right to terminate this Agreement
upon 10 days written notice to Service Company.
9. Adjustment. In case of any recapitalization, readjustment or other
change in the structure of Fund requiring a change in the form of share
certificates, Service Company will issue or register certificates in the new
form in exchange for, or in transfer of, the outstanding certificates in the old
form, upon receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and Declaration
of Trust or other document effecting the change.
C. Certified copy of any order or consent of each governmental or
regulatory authority required by law for the issuance of the
shares in the new form, and an opinion of counsel that no order or
consent of any other government or regulatory authority is
required.
D. Specimens of the new certificates in the form approved by the
Board of Trustees of Fund, with a certificate of the Secretary of
Fund as to such approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of Fund in the new
form under the Securities Act of 1933, and any other
applicable federal or state laws.
(2) To the effect that the issued shares in the new form are, and
all unissued shares will be when issued, validly issued, fully
paid and non-assessable.
10. Share Certificates. Fund will furnish Service Company with a
sufficient supply of blank share certificates and from time to time will renew
such supply upon the request of Service Company. Such certificates will be
signed manually or by facsimile signatures of the officers of Fund authorized by
law and Fund's Bylaws to sign share certificates and, if required, will bear the
trust seal or facsimile thereof.
6
<PAGE>
11. Death, Resignation or Removal of Signing Officer. Fund will file
promptly with Service Company written notice of any change in the officers
authorized to sign share certificates, written instructions or requests,
together with two signature cards bearing the specimen signature of each newly
authorized officer, all as certified by an appropriate officer of the Fund. In
case any officer of Fund who will have signed manually or whose facsimile
signature will have been affixed to blank share certificates will die, resign,
or be removed prior to the issuance of such certificates, Service Company may
issue or register such share certificates as the share certificates of Fund
notwithstanding such death, resignation, or removal, until specifically directed
to the contrary by Fund in writing. In the absence of such direction, Fund will
file promptly with Service Company such approval, adoption, or ratification as
may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and Bylaws.
Fund will promptly file with Service Company copies of all material amendments
to its Agreement and Declaration of Trust and Bylaws and Registration Statement
made after the date of this Agreement.
13. Instructions, Opinion of Counsel and Signatures. At any time
Service Company may apply to any officer of Fund for instructions, and may
consult with legal counsel for Fund at the expense of Fund, or with its own
legal counsel at its own expense, with respect to any matter arising in
connection with the agency; and it will not be liable for any action taken or
omitted by it in good faith in reliance upon such instructions or upon the
opinion of such counsel. Service Company is authorized to act on the orders,
directions or instructions of such persons as the Board of Trustees of Fund
shall from time to time designate by resolution. Service Company will be
protected in acting upon any paper or document, including any orders, directions
or instructions, reasonably believed by it to be genuine and to have been signed
by the proper person or persons; and Service Company will not be held to have
notice of any change of authority of any person so authorized by Fund until
receipt of written notice thereof from Fund. Service Company will also be
protected in recognizing share certificates that it reasonably believes to bear
the proper manual or facsimile signatures of the officers of Fund, and the
proper countersignature of any former Transfer Agent or Registrar, or of a
Co-Transfer Agent or Co-Registrar.
14. Papers Subject to Approval of Counsel. The acceptance by Service
Company of its appointment as Transfer Agent and Dividend Disbursing Agent, and
all documents filed in connection with such appointment and thereafter in
connection with the agencies, will be subject to the approval of legal counsel
for Service Company, which approval will not be unreasonably withheld.
15. Certification of Documents. The required copy of the Agreement and
Declaration of Trust of Fund and copies of all amendments thereto will be
certified by the appropriate official of The Commonwealth of Massachusetts; and
if such Agreement and Declaration of Trust and amendments are required by law to
be also filed with a county, city or other officer or official body, a
certificate of such filing will appear on the certified copy submitted to
Service Company. A copy of the order or consent of each governmental or
regulatory authority required by law for the issuance of Fund shares will be
certified by the Secretary or Clerk of such governmental or regulatory
authority, under proper seal of such authority. The copy of the Bylaws and
copies of all amendments thereto and copies of resolutions of the Board of
Trustees of Fund will be certified by the Secretary or an Assistant Secretary of
Fund.
7
<PAGE>
16. Records. Service Company will maintain customary records in
connection with its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph (2)(iv) of paragraph (b) of
Rule 31a-1 under the Investment Company Act of 1940, if any.
17. Disposition of Books, Records and 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.
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.
8
<PAGE>
E. Service Company will issue and mail subscription warrants and
certificates provided by Fund and representing share dividends, exchanges or
split-ups, or act as Conversion Agent upon receiving written instructions from
any officer of Fund and such other documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up certificates upon
receiving written instructions from an officer of Fund and such other documents
as Service Company may deem necessary.
G. Service Company may issue new certificates in place of certificates
represented to have been lost, destroyed, stolen or otherwise wrongfully taken,
upon receiving indemnity satisfactory to Service Company, and may issue new
certificates in exchange for, and upon surrender of, mutilated certificates. Any
such issuance shall be in accordance with the provisions of law governing such
matter and any procedures adopted by the Board of Trustees of the Fund of which
Service Company has notice.
H. Service Company will supply a shareholder's list to Fund properly
certified by an officer of Service Company for any shareholder meeting upon
receiving a request from an officer of Fund. It will also supply lists at such
other times as may be reasonably requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of Fund, Service
Company will address and mail notices to shareholders.
J. In case of any request or demand for the inspection of the share
books of Fund or any other books of Fund in the possession of Service Company,
Service Company will endeavor to notify Fund and to secure instructions as to
permitting or refusing such inspection. Service Company reserves the right,
however, to exhibit the share books or other books to any person in case it is
advised by its counsel that it may be held responsible for the failure to
exhibit the share books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. Service Company will, at the expense of Fund, provide a special form
of check containing the imprint of any device or other matter desired by Fund.
Said checks must, however, be of a form and size convenient for use by Service
Company.
B. If Fund wants to include additional printed matter, financial
statements, etc., with the dividend checks, the same will be furnished to
Service Company within a reasonable time prior to the date of mailing of the
dividend checks, at the expense of Fund.
C. If Fund wants its distributions mailed in any special form of
envelopes, sufficient supply of the same will be furnished to Service Company
but the size and form of said envelopes will be subject to the approval of
Service Company. If stamped envelopes are used, they must be furnished by Fund;
or, if postage stamps are to be affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by Fund.
9
<PAGE>
D. Service Company will maintain one or more deposit accounts as Agent
for Fund, into which the funds for payment of dividends, distributions,
redemptions or other disbursements provided for hereunder will be deposited, and
against which checks will be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon sixty (60)
days prior written notice to the other party.
B. Fund, in addition to any other rights and remedies, shall have the
right to terminate this Agreement forthwith upon the occurrence at any time of
any of the following events:
(1) Any interruption or cessation of operations by Service Company
or its assigns which materially interferes with the business
operation of Fund.
(2) The bankruptcy of Service Company or its assigns or the
appointment of a receiver for Service Company or its assigns.
(3) Any merger, consolidation or sale of substantially all the
assets of Service Company or its assigns.
(4) The acquisition of a controlling interest in Service Company
or its assigns, by any broker, dealer, investment adviser or
investment company except as may presently exist.
(5) Failure by Service Company or its assigns to perform its
duties in accordance with this Agreement, which failure
materially adversely affects the business operations of Fund
and which failure continues for thirty (30) days after written
notice from Fund.
(6) The registration of Service Company or its assigns as a
transfer agent under the Securities Exchange Act of 1934 is
revoked, terminated or suspended for any reason.
C. In the event of termination, Fund will promptly pay Service Company
all amounts due to Service Company hereunder. Upon termination of this
Agreement, Service Company shall deliver all shareholder and account records
pertaining to Fund either to Fund or as directed in writing by Fund.
21. Assignment.
A. Neither this Agreement nor any rights or obligations hereunder may
be assigned by Service Company without the written consent of Fund; provided,
however, no assignment will relieve Service Company of any of its obligations
hereunder.
B. This Agreement including, without limitation, the provisions of
Section 7 will inure to the benefit of and be binding upon the parties and their
respective successors and assigns.
10
<PAGE>
C. Service Company is authorized by Fund to use the system services of
DST Systems, Inc. and the system and other services, including data entry, of
Administrative Management Group, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section 18.J hereof, or
as otherwise required by law, Service Company will keep confidential all records
of and information in its possession relating to Fund or its shareholders or
shareholder accounts and will not disclose the same to any person except at the
request or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep confidential all
financial statements and other financial records (other than statements and
records relating solely to Fund's business dealings with Service Company) and
all manuals, systems and other technical information and data, not publicly
disclosed, relating to Service Company's operations and programs furnished to it
by Service Company pursuant to this Agreement and will not disclose the same to
any person except at the request or with the consent of Service Company.
Notwithstanding anything to the contrary in this Section 22.B, if an attempt is
made pursuant to subpoena or other legal process to require Fund to disclose or
produce any of the aforementioned manuals, systems or other technical
information and data, Fund shall give Service Company prompt notice thereof
prior to disclosure or production so that Service Company may, at its expense,
resist such attempt.
23. Survival of Representations and Warranties. All representations and
warranties by either party herein contained will survive the execution and
delivery of this Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the State of Illinois
and shall be governed by the laws of said state (except as to Section 24.G
hereof which shall be governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
C. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
D. This Agreement shall become effective as of the date hereof.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
F. If any part, term or provision of this Agreement is held by the
courts to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid.
11
<PAGE>
G. All parties hereto are expressly put on notice of Fund's Agreement
and Declaration of Trust which is on file with the Secretary of The Commonwealth
of Massachusetts, and the limitation of shareholder and trustee liability
contained therein. This Agreement has been executed by and on behalf of Fund by
its representatives as such representatives and not individually, and the
obligations of Fund hereunder are not binding upon any of the Trustees, officers
or shareholders of the Fund individually but are binding upon only the assets
and property of Fund. With respect to any claim by Service Company for recovery
of that portion of the compensation and expenses (or any other liability of Fund
arising hereunder) allocated to a particular Portfolio, whether in accordance
with the express terms hereof or otherwise, Service Company shall have recourse
solely against the assets of that Portfolio to satisfy such claim and shall have
no recourse against the assets of any other Portfolio for such purpose.
H. This Agreement, together with the Fee Schedule, is the entire
contract between the parties relating to the subject matter hereof and
supersedes all prior agreements between the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the day and year
first set forth above.
KEMPER INCOME TRUST
By: /s/Mark S. Casady
---------------------------
Mark S. Casady
President
KEMPER SERVICE COMPANY
By: /s/Robert W. Ciarlelli
---------------------------
Title:
12
<PAGE>
EXHIBIT A
---------
FEE SCHEDULE
------------
13
<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.
14
Exhibit (9)(b)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 30th day of November, 1998 between Kemper Income
Trust (the "Fund"), on behalf of Kemper High Yield Fund II (hereinafter called
the "Portfolio"), a registered open-end management investment company with its
principal place of business in Chicago, Illinois, and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's investment adviser, custodian or
transfer agent and/or books and records maintained by all other
service providers necessary for the Fund to conduct its business
as a registered open-end management investment company. All
such books and records shall be the property of the Fund and
shall at all times during regular business hours be open for
inspection by, and shall be surrendered promptly upon request
of, duly authorized officers of the Fund. All such books and
records shall at all times during regular business hours be open
for inspection, upon request of duly authorized officers of the
Fund, by employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the
<PAGE>
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 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.
2
<PAGE>
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 other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
3
<PAGE>
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 Income Trust
222 South Riverside Plaza
Chicago, IL 60606
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both
4
<PAGE>
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 INCOME TRUST, on behalf of
Kemper High Yield Fund II
By: /s/Mark S. Casady
-----------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
/s/John R. Hebble
-----------------
John R. Hebble
5
Exhibit 9(c)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 30th day of November, 1998 by and between KEMPER INCOME
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 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.
<PAGE>
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
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.
[SIGNATURES APPEAR ON THE NEXT PAGE]
2
<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 INCOME TRUST
By: /s/Mark S. Casady
-------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
-------------------------
Title:
3
<PAGE>
APPENDIX I
KEMPER INCOME 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 INCOME TRUST
By: /s/Mark S. Casady
-------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
-------------------------
Title:
Dated: November 30, 1998
4
<TABLE>
<S> <C> <C>
ROCKEFELLER PLAZA Law Offices of 90 STATE HOUSE SQUARE
NEW YORK, NY 10112 HARTFORD, CT 06103-3702
(212) 698-3500 DECHERT PRICE & RHOADS (860) 524-3999
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TITMUSS SAINER DECHERT
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November 24, 1998
Kemper Income Trust in respect of
Kemper High Yield Fund II
222 South Riverside Plaza
Chicago, Illinois 60606
Re: Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A (File No. 811-08983) (the "Registration Statement")
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Gentlemen:
Kemper Income Trust (the "Trust") is a trust created under a written
Declaration of Trust dated August 27, 1998, as executed and delivered in Boston,
Massachusetts (the "Declaration of Trust"). The beneficial interest thereunder
is represented by transferable shares with a par value of $.01 per share (the
"Shares"). The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees
are empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares of beneficial interest authorized to be issued under the
Declaration of Trust is unlimited. Under Article V, Section 5.11, the Trustees
may authorize the division of shares into two or more series. By written
instrument dated August 27, 1998, the sole initial Trustee of the Trust
established the initial series of the Trust designated as Kemper High Yield Fund
II (the "Fund").
<PAGE>
Scudder Income Trust
November 24, 1998
Page 2
By vote adopted on November 17, 1998, the Trustees of the Trust
authorized the President, any Vice President, the Secretary or any Assistant
Secretary, and the Treasurer, from time to time, to cause to be registered with
the Securities and Exchange Commission an indefinite number of Shares and to
cause such Shares to be offered and sold to the public.
We understand that you are about to file Pre-Effective Amendment No. 1
to the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of said Shares, comprising the Shares covered by Pre-Effective Amendment
No. 1 to the Registration Statement, has been duly taken, and that all such
Shares may be legally and validly issued for cash, and when sold will be fully
paid and non-assessable by the Trust upon receipt by the Trust or its agent of
consideration for such Shares in accordance with the terms in the Registration
Statement, subject to compliance with the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement.
Very truly yours,
/s/DECHERT PRICE & RHOADS
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors
and Reports to Shareholders" and to the use of our report on the Kemper Income
Trust - Kemper High Yield Fund II dated November 25, 1998 in the Registration
Statement (Form N-1A) of Kemper Income Trust and its incorporation by reference
in the related Prospectus and Statement of Additional Information filed with the
Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 and in this Amendment
No. 1 to the Registration Statement under the Investment Company Act of 1940
(File No. 811-08983).
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 1998
Exhibit 15(a)
Fund: Kemper Income Trust (the "Fund")
Series: Kemper High Yield Fund II (the "Series")
Class: Class B (the "Class")
RULE 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company Act
of 1940 (the "Act"), this Rule 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.
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.
<PAGE>
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.
2
Exhibit 15(b)
Fund: Kemper Income Trust (the "Fund")
Series: Kemper High Yield Fund II (the "Series")
Class: Class C (the "Class")
RULE 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company Act
of 1940 (the "Act"), this Rule 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.
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.
<PAGE>
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.
2
Exhibit 18
KEMPER MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi-Distribution
System Plan (each a "Fund" and collectively the "Funds") is an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. serves as investment adviser
and Kemper Distributors, Inc. serves as principal underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services
agreement providing for a service fee at an annual rate of up to .25% of average
daily net assets;
WHEREAS, each Fund has established a Multi-Distribution System enabling
each Fund, as more fully reflected in its prospectus, to offer investors the
option of purchasing shares (a) with a front-end sales load (which may vary
among Funds) and a service fee ("Class A shares"); (b) without a front-end sales
load, but subject to a Contingent Deferred Sales Charge ("CDSC") (which may vary
among Funds), a Rule 12b-1 plan providing for a distribution fee, and a service
fee ("Class B shares"); (c) without a front-end sales load, but subject to a
CDSC (applicable to shares purchased on or after April 1, 1996 and which may
vary among Funds), a Rule 12b-1 Plan providing for a distribution fee, and a
service fee ("Class C shares"); and (d) for certain Funds, without a front-end
load, a CDSC, a distribution fee or a service fee ("Class I shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under
the 1940 Act, hereby adopts this Multi-Distribution System Plan as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific
<PAGE>
class; (ii) Securities and Exchange Commission registration fees incurred by a
specific class; (iii) litigation or other legal expenses relating to a specific
class; (iv) board member fees or expenses incurred as a result of issues
relating to a specific class; and (v) accounting expenses relating to a specific
class; (e) the voting rights related to any Rule 12b-1 Plan affecting a specific
class of shares; (f) conversion features; (g) exchange privileges; and (h) class
names or designations. Any additional incremental expenses not specifically
identified above that are subsequently identified and determined to be properly
applied to one class of shares of the Fund (or a series) shall be so applied
upon approval by a majority of the members of the Fund's board, including a
majority of the board members who are not interested persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to hat class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or series)
at the relative net asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares issued
in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall convert
to Class A shares seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991. Class B shares issued upon
reinvestment of income and capital gain dividends and other distributions will
be converted to Class A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of another Fund, or with
money market fund shares as described in the applicable prospectus. Exchanges
will comply with all applicable provisions
2
<PAGE>
of Rule 11a-3 under the 1940 Act. For purposes of calculating the time period
remaining on the conversion of Class B shares to Class A shares, Class B shares
received on exchange retain their original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount;
except that any distribution fees, service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Article III, Section 26,
of the Conduct Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's board, including a majority of the board members
who are not interested persons of the Fund.
Any open-end investment company may establish a Multi-Distribution
System and adopt this Multi-Distribution System Plan by approval of a majority
of the members of any such company's governing board, including a majority of
the board members who are not interested persons of such company.
For use on or after: April 1, 1996
3