Filed electronically with the Securities and Exchange Commission
on October 15, 1999.
File No. 333-65661
File No. 811-09057
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 5 / X /
And
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 6
---- / X /
KEMPER FUNDS TRUST
------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora, Vice President and Secretary
-----------------------------------------------
Kemper Funds Trust
------------------
222 South Riverside Plaza
-------------------------
Chicago, Illinois 60606
-----------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C> <C> <C>
/ / Immediately upon filing pursuant to paragraph ( b ) / / 60 days after filing pursuant to paragraph ( a ) ( 1 )
/ / 75 days after filing pursuant to paragraph ( a ) ( 2 ) / / On ( date ) pursuant to paragraph ( b )
/ X / On January 1, 2000 pursuant to paragraph ( a ) ( 1 ) / / On (date) pursuant to paragraph (a)(2) of Rule 485.
</TABLE>
/ / If Appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
LONG TERM
INVESTING
IN A
SHORT TERM
WORLD(SM)
January 1, 2000
Prospectus
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
3 Kemper Equity Funds
Kemper Large Company Growth Fund
Kemper Research Fund
Kemper Small Cap Value+Growth Fund
The Securities and Exchange Commission has not approved
or disapproved these securities or passed upon
the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
THESE FUNDS ARE AVAILABLE ONLY TO EMPLOYEES OF SCUDDER KEMPER INVESTMENTS, INC.
IN THE FOLLOWING STATES: CALIFORNIA, CONNECTICUT, FLORIDA, ILLINOIS, KANSAS,
MASSACHUSETTS, MISSOURI, NEW HAMPSHIRE, NEW JERSEY AND NEW YORK.
<PAGE>
CONTENTS
ABOUT THE FUNDS...........................................................3
Kemper Large Company Growth Fund.......................................3
Kemper Research Fund...................................................8
Kemper Small Cap Value+Growth Fund....................................12
Kemper Small Cap Value+Growth Fund....................................13
ABOUT YOUR INVESTMENT....................................................22
Choosing a share class..............................................22
Special features....................................................23
Buying shares.......................................................25
Selling and exchanging shares.......................................29
Distributions and taxes.............................................32
Transaction information.............................................34
2
<PAGE>
ABOUT THE FUNDS
KEMPER LARGE COMPANY GROWTH FUND
Investment objective
Kemper Large Company Growth Fund seeks long-term growth of capital. Unless
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
Main investment strategies
The fund pursues its objective by investing primarily in the equity securities
of seasoned, financially strong U.S. growth companies (those with a market value
of $1 billion or more). The fund allocates its investments among different
industries and companies, and adjusts its portfolio securities based on
long-term investing considerations as opposed to short-term trading
considerations.
Under normal circumstances, the fund will invest at least 65% of its total
assets in equity securities of large U.S. growth companies. While most of the
fund's equity securities are common stocks, the fund may also invest in
convertible securities, preferred stocks, and depositary receipts.
In choosing stocks, the portfolio management team looks for companies with some
or all of the following attributes:
o a record of above-average growth relative to the overall market (as defined
by the Standard & Poor's 500 Composite Stock Price Index) with prospects
for above-average growth in earnings, cash flow or assets in the future;
o strong competitive positioning, such as important business franchises,
leading products or dominant marketing and distribution systems;
o attractive prices relative to potential growth in earnings, cash flow or
assets;
o sound finances, high credit standings and profitability; or
o experienced, motivated management.
3
<PAGE>
KEMPER LARGE COMPANY GROWTH FUND
To identify companies with above average quality and growth characteristics
selling at attractive market valuations, the portfolio management team uses
fundamental and quantitative research techniques. Fundamental research is used
to evaluate a company's performance, with emphasis on consistency of results,
long-term growth prospects, and financial strength. Quantitative research is
used to determine which growth company offers the best value at a given time.
The fund typically sells a stock when:
o the company's earnings growth potential has become less favorable;
o the capitalization of the issuer ceases to qualify the issuer's securities
as an investment for the fund;
o the stock fails to meet the portfolio management team's expectations; or
o changes occur in the market or investment environment.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
4
<PAGE>
KEMPER LARGE COMPANY GROWTH FUND
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. In such a case, the fund would not be pursuing, and may not
achieve, its objective.
Main risks
The fund's principal risks are associated with investing in the stock market and
the portfolio management team's skill in managing the fund's portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock . The fund's returns
and net asset value will go up and down. Stock market movements will affect the
fund's share prices on a daily basis. Declines in value are possible both in the
overall stock market and in the types of securities held by the fund.
Because of their perceived return potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity.
The portfolio management team's skill in choosing appropriate investments for
the fund will determine in large part the fund's ability to achieve its
investment objective.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance. There are market and investment risks
with any security. The value of an investment in the fund will fluctuate over
time and it is possible to lose money invested in the fund.
Past Performance
As the fund does not have a full calendar year of performance, no past
performance information is provided.
5
<PAGE>
KEMPER LARGE COMPANY GROWTH FUND
Fee and Expense Information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the "Choosing a share
class", "Special features", and "Buying shares" sections of this prospectus.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment
- ---------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as %
<S> <C> <C> <C>
of offering price) 5.75% None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None^(1) 4%^(2) 1%^(2)
-------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None None None
-------------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
- ---------------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets
- ---------------------------------------------------------------------------------------
Management Fee
-------------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
-------------------------------------------------------------------------------------
Other Expenses % % %
-------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses % % %
-------------------------------------------------------------------------------------
Expense Reimbursement % % %
-------------------------------------------------------------------------------------
Net Annual Operating Expenses* % % %
-------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege (for purchases totaling at least
$1,000,000) may be subject to a contingent deferred sales charge of 1%
during the first year and 0.50% during the second year.
(2) The contingent deferred sales charges on Class B shares are as follows: 4%
in the first year, 3% in the second and third year, 2% in the fourth and
fifth year, 1% in the sixth year and eliminated thereafter. A contingent
deferred sales charge of 1% is applicable to Class C shares redeemed within
one year of purchase..
* By contract, total operating expenses are capped at ___% through
12/31/2000.
6
<PAGE>
KEMPER LARGE COMPANY GROWTH FUND
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "total annual fund operating expenses" remaining the same each year. Actual
fund expenses and returns vary from year to year, and may be higher or lower
than those shown.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fees and expenses if you did not sell
Fees and expenses if you sold shares after: your shares:
- -------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ $ $ 1 Year $ $ $
- -------------------------------------------------------------------------------------
3 Years $ $ $ 3 Years $ $ $
- -------------------------------------------------------------------------------------
5 Years $ $ $ 5 Years $ $ $
- -------------------------------------------------------------------------------------
10 Years $ $ $ 10 Years $ $ $
- -------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
KEMPER RESEARCH FUND
Investment objective
Kemper Research Fund seeks long-term growth of capital. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund pursues its objective by investing primarily in a diversified portfolio
of common stocks. The investment manager generally diversifies among industry
sectors (i.e. energy, technology, financial, etc.) according to the weightings
of U.S. market benchmarks, such as the Standard & Poor's 500 Composite Stock
Price Index or the Morgan Stanley Capital U. S. Index.
Under normal market conditions, the fund invests at least 65% of its total
assets in common stocks of large U.S. companies( i.e. those with market
capitalizations of $1 billion or more).
The fund leverages the investment manager's extensive resources by focusing on
the top stock recommendations identified by the investment manager's large staff
of industry research analysts and other investment specialists. Using in-depth,
independent research, the investment manager assigns proprietary ratings to
these securities, which the investment manager then selects for the fund's
portfolio based on sector weightings and industry and company forecasts. While
other growth funds (i.e. funds that invest in companies with above-average
earnings growth potential) hold these securities as well, this fund focuses
particularly on securities across all sectors and investment disciplines.
The fund is managed with a view to achieving a high rate of total return on
investors' capital primarily through appreciation of the fund's common stock
holdings.
The fund typically sells a stock if:
o its fundamental characteristics change;
o the stock fails to meet the portfolio management team's expectations; or
o changes occur in the market or investment environment.
8
<PAGE>
KEMPER RESEARCH FUND
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. In such a case, the fund would not be pursuing, and may not
achieve, its objective.
Main risks
The fund's principal risks are associated with investing in the stock market and
the portfolio management team's skill in managing the fund's portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock. The fund's returns
and net asset value will go up and down. Stock market movements will affect the
fund's share prices on a daily basis. Declines in value are possible both in the
overall stock market and in the types of securities held by the fund.
Because of their perceived return potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity.
The portfolio management team's skill in choosing appropriate investments for
the fund will determine in large part the fund's ability to achieve its
investment objective.
9
<PAGE>
KEMPER RESEARCH FUND
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance. There are market and investment risks
with any security. The value of an investment in the fund will fluctuate over
time and it is possible to lose money invested in the fund.
Past Performance
As the fund does not have a full calendar year of performance, no past
performance information is provided.
10
<PAGE>
KEMPER RESEARCH FUND
Fee and Expense Information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the "Choosing a share
class", "Special features", and "Buying shares" sections of this prospectus.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment
- ---------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as %
of offering price) 5.75% None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None^(1) 4%^(2) 1%(^2)
-------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None None None
-------------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
- ---------------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets
- ---------------------------------------------------------------------------------------
Management Fee % % %
-------------------------------------------------------------------------------------
Distribution (12b-1) Fees None % %
-------------------------------------------------------------------------------------
Other Expenses % % %
-------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses % % %
-------------------------------------------------------------------------------------
Expense Reimbursement % % %
-------------------------------------------------------------------------------------
Net Annual Fund Operating Expenses* % % %
-------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege (for purchases totaling at least
$1,000,000) may be subject to a contingent deferred sales charge of 1%
during the first year and 0.50% during the second year. (2) The contingent
deferred sales charges on Class B shares are as follows: 4% in the first
year, 3% in the second and third year, 2% in the fourth and fifth year, and
1% in the sixth year and eliminated thereafter. A contingent deferred sales
charge of 1% is applicable to Class C shares redeemed within one year of
purchase..
* By contract, total operating expenses are capped at ___% through
12/31/2000.
11
<PAGE>
KEMPER RESEARCH FUND
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "total annual fund operating expenses" remaining the same each year. Actual
fund expenses and returns vary from year to year, and may be higher or lower
than those shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Fees and expenses if you did not sell
Fees and expenses if you sold shares after: your shares:
- ----------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ $ $ 1 Year $ $ $
- ----------------------------------------------------------------------------------------
3 Years $ $ $ 3 Years $ $ $
- ----------------------------------------------------------------------------------------
5 Years $ $ $ 5 Years $ $ $
- ----------------------------------------------------------------------------------------
10 Years $ $ $ 10 Years $ $ $
- ----------------------------------------------------------------------------------------
</TABLE>
KEMPER SMALL CAP VALUE+GROWTH FUND
Investment objective
Kemper Small Cap Value+Growth Fund seeks long-term capital appreciation . Unless
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
Main investment strategies
The fund pursues its objective by investing primarily in a diversified portfolio
of domestic small company value and small company growth stocks. Under normal
circumstances, no more than 75% of the portfolio will be invested in either of
small company value stocks or small company growth stocks.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities of companies that are similar in size to those comprising
the Russell 2000 Index, an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Generally, small companies are those with
market capitalizations of less than $1.5 billion. The fund's principal
investments are common stocks traded on the
12
<PAGE>
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market System.
Value stocks are stocks which tend to have low price-to-earnings ratios. The
fund invests in those value stocks which the investment manager believes are
undervalued in relation to their earnings potential. Securities may be
undervalued as a result of overreaction by investors to actual or anticipated
unfavorable news about a company, industry or the stock markets in general or as
a result of a market decline or poor economic conditions. Growth stocks are
stocks of companies with above-average earnings growth potential. Growth stocks
in which the fund invests tend to have high price-to-earnings ratios but have an
earnings potential which the investment manager believes more than justifies the
price. .
The investment manager uses quantitative research to identify small companies
with above-average return potential and to determine the allocation between
value and growth stocks in the fund's portfolio. The quantitative research
focuses on the following attributes in determining which securities may be
attractive investments:
KEMPER SMALL CAP VALUE+GROWTH FUND
o valuations;
o earnings trends;
o future earnings potential; or
o a company's financial strength .
The fund typically sells a security if:
o the company's market capitalization exceeds the market capitalization of
the largest company in the Russell 2000 Index maximum;
o the portfolio management team believes the security has become unattractive
on a valuation basis;
o the company's earnings trends have deteriorated;
o the company's outlook for future earnings is uncertain; or
o the security has not met the portfolio management team's expectations.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
13
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents. In such a case, the fund would not be pursuing, and may not
achieve, its objective.
14
<PAGE>
KEMPER SMALL CAP VALUE+GROWTH FUND
Main risks
The fund's principal risks are associated with investing in the stock market and
the portfolio management team's skill in managing the fund's portfolio.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock. The fund's returns
and net asset value will go up and down. Stock market movements will affect the
fund's share prices on a daily basis. Declines in value are possible both in the
overall stock market and in the types of securities held by the fund.
While small company stocks have historically outperformed large company stocks,
they also have been subject to greater investment risk. The risks generally
associated with small companies include more limited product lines, markets and
financial resources, lack of management depth or experience, dependency on key
personnel and vulnerability to adverse market and economic developments.
Accordingly, the prices of small company stocks tend to be more volatile than
prices of large company stocks. Further, the prices of small company stocks are
often adversely affected by limited trading volumes and the lack of publicly
available information.
Also, because small companies normally have fewer shares outstanding and these
shares generally trade less frequently than large companies, it may be more
difficult for the fund to buy and sell significant amounts of small company
shares without having an unfavorable impact on the shares' market price.
Share prices of growth funds fluctuate with changes in the stock market. This
characteristic makes growth funds most suitable for the long-term portion of
your portfolio. Investing in value stocks involves the subjective determination
that a stock is undervalued; the market may not agree, and a stock's price may
not rise to what the portfolio management team believes is its full value. It
may even decrease in value. The fund's policy of investing in both value and
growth stocks of small capitalization companies may lead it to underperform in a
market that particularly favors value, growth or large capitalization stocks.
The portfolio management team's skill in choosing appropriate investments for
the fund will determine in large part the fund's ability to achieve its
investment objective.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
15
<PAGE>
<PAGE>
KEMPER SMALL CAP VALUE+GROWTH FUND
There are market and investment risks with any security. The value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund.
Past Performance
As the fund does not have a full calendar year of performance, no past
performance information is provided.
Fee and Expense Information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the "Choosing a share
class", "Special features", and "Buying shares" sections of this prospectus.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment
- ---------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as %
of offering price) 5.75% None None
------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None^(1) 4%^(2) 1%^(2)
------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None None None
------------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) None None None
------------------------------------------------------------------------------------
Exchange Fee None None None
- ---------------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets
- ---------------------------------------------------------------------------------------
Management Fee % % %
------------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
------------------------------------------------------------------------------------
Other Expenses % % %
------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses % % %
------------------------------------------------------------------------------------
Expense Reimbursement % % %
------------------------------------------------------------------------------------
Net Annual Operating Expenses* % % %
------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege (for purchases totaling at least
$1,000,000) may be subject to a contingent deferred sales charge of 1%
during the first year and .50% during the second year.
16
<PAGE>
KEMPER SMALL CAP VALUE+GROWTH FUND
(2) The contingent deferred sales charges on Class B shares are as follows: 4%
in the first year, 3% in the second and third year, 2% in the fourth and
fifth year, 1% in the sixth year and eliminated thereafter. A contingent
deferred sales charge of 1% is applicable to Class C shares redeemed within
one year of purchase.
* Until further notice, an administrative services fee, which is reflected
above in "Other Expenses," is currently voluntarily waived. After waiver
total annual fund operating expenses for Class A, Class B, and Class C
shares would be ____%, ____%, and ____%, respectively.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "total annual fund operating expenses" remaining the same each year. Actual
fund expenses and returns vary from year to year, and may be higher or lower
than those shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Fees and expenses if you did not sell
Fees and expenses if you sold shares after: your shares:
- ----------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ $ $ 1 Year $ $ $
- ----------------------------------------------------------------------------------------
3 Years $ $ $ 3 Years $ $ $
- ----------------------------------------------------------------------------------------
5 Years $ $ $ 5 Years $ $ $
- ----------------------------------------------------------------------------------------
10 Years $ $ $ 10 Years $ $ $
- ----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Investment Manager
Each fund retains the investment management firm of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, New York, to manage its daily investment and
business affairs subject to the policies established by the funds' Board.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide, managing more than $290 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Kemper Large Company Growth Fund and Kemper Research Fund each pays the
investment manager an annual fee as a percentage of the fund's average daily net
assets for providing investment management services, as described in the
following table:
As a % of Average Daily Net Assets ($ Annual Fee Rate
-------------------------------------- ---------------
0-250,000,000 0.70%
250,000,000-1,000,000,000 0.67%
1,000,000,000-2,500,000,000 0.65%
More than 2,500,000,000 0.63%
Kemper Small Cap Value+Growth Fund pays the investment manager an annual fee as
a percentage of the fund's average daily net assets for providing investment
management services, as described in the following table:
As a % of Average Daily Net Assets ($) Annual Fee Rate
-------------------------------------- ---------------
0-250,000,000 0.75%
250,000,000-1,000,000,000 0.72%
1,000,000,000-2,500,000,000 0.70%
More than 2,500,000,000 0.68%
18
<PAGE>
Portfolio management
The following investment professionals are associated with the funds as
indicated:
Kemper Large Company Growth Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Valerie Malter, December 1998 Joined Scudder Kemper Investments in 1995
Lead Manager as Product Leader of Quality Growth
Equity. From 1993 to 1995, Ms. Malter
served as a portfolio manager for
Chancellor Capital Management. Ms. Malter,
who began her investment career in 1985,
also has experience as an analyst and
portfolio manager covering a wide range of
industries and, more recently, the stocks
of companies with medium- to large-sized
market capitalizations.
George P. Fraise, December 1998 Joined Scudder Kemper Investments in 1997.
Portfolio Manager Between 1993 and 1997, Mr. Fraise served as
an analyst for Smith Barney and Chancellor
Capital Management. Mr. Fraise began his
investment career in 1987 and has
experience as an equity analyst covering a
broad range of industries, most recently
including capital goods and electrical
equipment.
19
<PAGE>
Kemper Research Fund
<TABLE>
<CAPTION>
Name & Title Joined the Fund Background
- ------------------------------------------------------------------------------------
<S> <C> <C>
Elizabeth D. Smith, Joined Scudder Kemper Investments in 1973.
Co-Lead Manager December 1998 Ms. Smith has been the product leader for
the investment manager's Research Portfolio
product since 1995 and has served as the
sector specialist for electrical equipment,
machinery and multi-industry firms since
1993. Ms. Smith, who began her investment
career in 1969, also has experience as a
research analyst covering computers,
household products, software, aerospace and
capital goods companies.
- ------------------------------------------------------------------------------------
Laurie Feldman December 1998 Joined Scudder Kemper Investments in
Co-Lead Manager 19__. [Need position with Scudder Kemper
and employment history for past 5 years]
- ------------------------------------------------------------------------------------
Kathleen Millard December 1998 Joined Scudder Kemper Investments in 1991
Portfolio Manager as a portfolio manager . She began her
investment career in 1984.
- ------------------------------------------------------------------------------------
</TABLE>
Kemper Small Cap Value+Growth Fund
<TABLE>
<CAPTION>
Name & Title Joined the Fund Responsibilities & Background
- -------------------------------------------------------------------------------------
<S> <C> <C>
James M. Eysenbach, December 1998 Joined Scudder Kemper Investments in 1991.
Lead Manager Mr. Eysenbach, who began his investment
career in 1984, has more than 14 years
investment management experience,
specializing in quantitative research,
analysis and portfolio management. Mr.
Eysenbach also served as Director of
Quantitative Services from 1993 to 1997.
Calvin Young, December 1998 Joined Scudder Kemper Investments in 1990.
Portfolio Manager From 1993 to 1998, Mr. Young served in the
Quantitative Services Group and as a
Quantitative Analyst. Mr. Young, who began
his investment career in 1988, has
experience providing analytical support to
the investment manager's equity products,
and his investment industry experience has
focused on small companies.
- -------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Year 2000 and euro readiness
Like all mutual funds , the funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, because they may invest in
foreign securities, the funds could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro. Scudder Kemper has readiness programs
designed to address these problems, and has researched the readiness of
suppliers and business partners as well as issuers of securities the fund owns.
Still, there is some risk that one or both of these problems could materially
affect each fund's operations (such as its ability to calculate net asset value
and to handle purchases and redemptions), its investments, or securities markets
in general.
21
<PAGE>
ABOUT YOUR INVESTMENT
These funds are available only to Scudder Kemper Investments, Inc. employees in
the following states: California, Connecticut, Florida, Illinois, Kansas,
Massachusetts, Missouri, New Hampshire, New Jersey and New York. It is
contemplated that, in the future, a fund's shares may be sold to the public, in
which case the inflow of additional capital may make it more difficult for the
fund's management to implement the fund's investment strategies and for the fund
to maintain its level of performance.
Choosing a share class
Each fund is composed of three classes of shares. All classes of a fund have a
common investment objective and investment portfolio. Each fund provides
investors with the option of purchasing shares in the following ways:
Class A Shares Offered at net asset value plus a maximum sales charge
of 5.75% of the offering price. Reduced sales charges
apply to purchases of $50,000 or more. Class A shares
purchased at net asset value under the Large Order NAV
Purchase Privilege may be subject to a 1% contingent
deferred sales charge if redeemed within one year of
purchase and a 0.50% contingent deferred sales charge if
redeemed during the second year after purchase.
Class B Shares Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution
fee and a contingent deferred sales charge that declines
from 4% to zero on certain redemptions made within six
years of purchase. Class B shares automatically convert
into Class A shares (which have lower ongoing expenses)
six years after purchase.
Class C Shares Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution
fee and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to
22
<PAGE>
redeem their shares within six years might consider Class C shares. For more
information about the three sales arrangements, consult your financial
representative or Kemper" at the address or phone number as indicated on the
back cover of this prospectus. Be aware that financial services firms may
receive different compensation depending upon which class of shares they sell.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by Kemper
Distributors, Inc., as principal underwriter, to pay for distribution and other
services provided to shareholders of those classes. Because 12b-1 fees are paid
out of fund assets on an ongoing basis, they will, over time, increase the cost
of investment and may cost more than other types of sales charges. Long-term
Class B and Class C shareholders may pay more than the economic equivalent of
the maximum initial sales charges permitted by the National Association of
Securities Dealers, although Kemper Distributors, Inc. believes that it is
unlikely, in the case of Class B shares, because of the automatic conversion
feature of those shares.
Special features
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors, Inc. The Letter, which imposes no obligation to purchase or
sell additional Class A shares, provides for a price adjustment depending upon
the actual amount purchased within such period.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
most (but not necessarily all) Kemper Funds (computed at the maximum offering
price at the time of the purchase for which the discount is applicable) already
owned by the investor.
Class A Shares -- Large Order NAV Purchase Privilege. Class A shares of a fund
may also be purchased at net asset value by any purchaser provided that the
amount invested in such fund or other Kemper Funds 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 above (the
"Large Order NAV Purchase Privilege").
23
<PAGE>
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Funds. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange from another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15 Day Hold Policy"). Shares of a Kemper Fund with a
value of $1,000,000 or less (except Kemper Cash Reserves Fund) acquired by
exchange from another Kemper Fund, or from a Money Market Fund, may not be
exchanged thereafter until they have been owned for 15 days if, in the
investment manager's judgment, the exchange activity may have an adverse effect
on the fund. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to a fund and therefore may be subject to the
15-Day Hold Policy. For purposes of determining whether the 15-Day Hold Policy
applies to a particular exchange, the value of the shares to be exchanged shall
be computed by aggregating the value of shares being exchanged for all accounts
under common control, direction or advice, including without limitation accounts
administered by a financial services firm offering market timing, asset
allocation or similar services.
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
The funds reserve the right to terminate or modify this privilege at any time.
24
<PAGE>
Buying shares
You may purchase shares of the funds by contacting the securities dealer or
other financial services firm from whom you received this prospectus.
These funds are currently available only to employees of Scudder Kemper
Investments, Inc. in the following states: California, Connecticut, Florida,
Illinois, Kansas, Massachusetts, Missouri, New Hampshire, New Jersey and New
York.
Class A Shares
Public
Offering Price Sales Charge Sales Charge
Including as a % of as a % of Net
Sales Charge Amount of Purchase Offering Price* Asset Value**
- ------------ ------------------ --------------- -------------
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00*** 0.00***
*Includes front-end sales load.
**Rounded to the nearest one-hundredth percent.
***Redemption of shares may be subject to a contingent deferred
sales charge as discussed below.
NAV Class A shares of a fund may be purchased at net asset value by:
Purchases
o shareholders in connection with the investment or
reinvestment of income and capital gain dividends;
o any purchaser with Kemper Funds investment totals of at
least $1,000,000;
o unitholders of unit investment trusts sponsored by Ranson &
Associates, Inc. or its predecessors through reinvestment
programs described in the prospectuses of such trusts that
have such programs;
o officers, trustees, directors, employees (including
retirees) and sales representatives of a fund, its
investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their
families , any trust, pension, profit-sharing or other
benefit plan for such persons;
o persons who purchase shares through bank trust departments
that process such trades through an automated, integrated
mutual fund clearing program provided by a third party
clearing firm;
o registered representatives and employees of broker-dealers
having selling group agreements with Kemper Distributors,
Inc. or any trust, pension, profit-sharing or other benefit
plan for such persons;
o officers, directors, and employees of service agents of the
funds;
25
<PAGE>
Class A Shares (cont.)
o members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et. al., Case No. 93 C 5231 (N.D.IL);
o selected employees (including their spouses and dependent
children) of banks and other financial services firms that
provide administrative services related to the funds
pursuant to an agreement with Kemper Distributors, Inc. or
one of its affiliates;
o certain professionals who assist in the promotion of Kemper
Funds pursuant to personal services contracts with Kemper
Distributors, Inc., for themselves or members of their
families;
o in connection with the acquisition of the assets of or
merger or consolidation with another investment company;
o shareholders who owned shares of Kemper Value Series, Inc.
("KVS") on September 8, 1995, and have continuously owned
shares of KVS (or a Kemper Fund acquired by exchange of KVS
shares) since that date, for themselves or members of their
families or any trust, pension, profit-sharing or other
benefit plan for only such persons;
o persons who purchase shares of the fund through Kemper
Distributors, Inc. as part of an automated billing and wage
deduction program administered by RewardsPlus of America;
o through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial services
firms, acting solely as agents for their clients, that
adhere to certain standards established by Kemper
Distributors, Inc., including a requirement that such shares
be purchased for the benefit of their clients participating
in an investment advisory program or agency commission
program under which such clients pay a fee to the investment
adviser or other firm for portfolio management or agency
brokerage services.
26
<PAGE>
Class A Shares (cont.)
Contingent A contingent deferred sales charge may be imposed upon
Deferred Sales redemption of Class A shares purchased under the Large Order NAV
Charge Purchase Privilege as follows: 1% if they are redeemed within
one year of purchase and 0.50% if redeemed during the second
year following purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The
contingent deferred sales charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a
maximum of 10% per year of the net asset value of the
account;
o redemption of shares of a shareholder (including a
registered joint owner) who has died;
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security
Administration);
o redemptions of shares whose dealer of record at the time of
the investment notifies Kemper Distributors, Inc., that the
dealer waives the commission applicable to such Large Order
NAV Purchase.
Rule 12b-1 Fee None
Exchange Class A shares may be exchanged for each other at their relative
Privilege net asset values. Shares of Money Market Funds and Kemper Cash
Reserves Fund acquired by purchase (not including shares
acquired by dividend reinvestment) are subject to the applicable
sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of any Kemper Fund
or a Money Market Fund without paying any contingent deferred
sales charge. If the Class A shares received on exchange are
redeemed thereafter, a contingent deferred sales charge may be
imposed.
27
<PAGE>
Class B Shares
Public Offering Net asset value per share without any sales charge at the time
Price of purchase
Contingent
Deferred Sales A contingent deferred sales charge may be imposed upon
Charge redemption of Class B shares. There is no such charge upon
redemption of any share appreciation or reinvested dividends.
The charge is computed at the following rates applied to the
value of the shares redeemed excluding amounts not subject to
the charge.
Year of Redemption
After Purchase: First Second Third Fourth Fifth Sixth
-------------------------------------------------------------
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
-------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being
based only upon the shareholder's Kemper IRA
accounts);
o for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal
periodic payments described in the Internal Revenue
Code (the "Code") Section 72(t)(2)(A)(iv) prior to
age 59 1/2;
o for redemptions made pursuant to a systematic
withdrawal plan;
o in the event of the total disability (as evidenced by
a determination by the federal Social Security
Administration) of the shareholder (including a
registered joint owner) occurring after the purchase
of the shares being redeemed;
o in the event of the death of the shareholder
(including a registered joint owner).
Rule 12b-1 Fee 0.75%
Conversion Class B shares of a fund will automatically convert to Class A
Feature shares of the same fund six years after issuance on the basis
of the relative net asset value per share. Shares purchased
through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a prorata
basis.
Exchange Class B shares of a fund and Class B shares of most Kemper
Privilege Funds may be exchanged for each other at their relative net
asset values without a contingent deferred sales charge.
28
<PAGE>
Class C Shares
Public Offering Net asset value per share without any sales charge at the
Price time of purchase
Contingent A contingent deferred sales charge of 1% may be imposed upon
Deferred Sales redemption of Class C shares redeemed within one year of
Charge purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemption of shares of a shareholder (including a
registered joint owner) who has died;
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social
Security Administration);
o redemptions under a fund's Systematic Withdrawal Plan
at a maximum of 10% per year of the net asset value of
the account;
o redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on
an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year
administrative services and distribution fees
applicable to such shares and has agreed to receive
such fees quarterly.
Rule 12b-1 Fee 0.75%
Conversion Feature None
Exchange Privilege Class C shares of a fund and Class C shares of most Kemper
Funds may be exchanged for each other at their relative net
asset values. Class C shares may be exchanged without a
contingent deferred sales charge.
Selling and exchanging shares
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Mutual Fund.
29
<PAGE>
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 when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. Kemper Distributors, Inc. receives any
contingent deferred sales charge directly.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, along with a duly endorsed stock power
and accompanied by a written request for redemption. Redemption requests and a
stock power must be endorsed by the account holder with signatures guaranteed.
The redemption request and stock power must be signed exactly as the account is
registered, including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
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
holders and guardian account holders of custodial accounts for gifts and
transfers to minors may exercise this special privilege of redeeming shares by
telephone request or written request without signature guarantee subject to the
same conditions as individual account holders and subject to the limitations on
liability described under "General" above, provided that this privilege has been
pre-authorized by the institutional account holder or guardian account holder by
written instruction to Kemper Service Company 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
30
<PAGE>
change within 30 days of the redemption request. During periods when it is
difficult to contact Kemper Service Company by telephone, it may be difficult to
use the telephone redemption privilege, although investors can still redeem by
mail. The funds reserve the right to terminate or modify this privilege at any
time.
Repurchases
A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to Kemper Distributors, Inc.,
which each fund has authorized to act as its agent. There is no charge by Kemper
Distributors, Inc. with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. The offer to repurchase may
be suspended at any time. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions
If the account holder has given authorization for expedited wire redemption to
the account holder's brokerage or bank account, shares of a fund can be redeemed
and proceeds sent by federal wire transfer to a single previously designated
account. Requests received by Kemper Service Company prior to the determination
of net asset value will result in shares being redeemed that day at the net
asset value of a class of a fund effective on that day and normally the proceeds
will be sent to the designated account the following business day, subject to a
fund's redemption policy set forth in "Redemption-in-Kind." Once authorization
is on file, Kemper Service Company will honor requests by telephone at
1-800-621-1048 or in writing, subject to the limitations on liability described
under "General" above. The funds are not responsible for the efficiency of the
federal wire system or the account holder's financial services firm or bank. The
funds currently do not charge the account holder for wire transfers. The account
holder is responsible for any charges imposed by the account holder's firm or
bank. There is a $1,000 wire redemption minimum (including any contingent
deferred sales charge). To change the designated account to receive wire
redemption proceeds, send a written request to Kemper Service Company 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 Kemper Service Company by telephone, it may be
difficult to use the expedited redemption privilege. The Funds reserve the right
to terminate or modify this privilege at any time.
31
<PAGE>
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
Distributions and taxes
Dividends and capital gains distributions
Each fund will normally distribute annual dividends of net investment income and
any net realized short-term and long-term capital gains .
Income and capital gains dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, Kemper Service Company, a shareholder
may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gains dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to Kemper
Service Company, you may choose to have dividends of a fund invested in shares
of the same class of another Kemper fund at the net asset value of that class
and fund. To use this privilege, you must maintain a minimum account value of
$1,000 in the fund distributing the dividends. The funds will reinvest dividend
checks (and future dividends) in shares of that same fund and class if checks
are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.
Distributions are generally taxable, whether received in cash or reinvested.
32
<PAGE>
Taxes
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other taxable
income distributions are taxable to shareholders as ordinary income. A portion
of dividends from ordinary income may qualify for the dividends-received
deduction for corporations.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to a shareholder as if paid on December 31 of the calendar year in
which they were declared.
A sale or exchange of a shareholder's shares is a taxable event and may result
in a capital gain or loss which may be long-term or short-term, generally
depending on how long the shareholder owned the shares.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to you.
Each fund sends shareholders detailed tax information about the amount and type
of its distributions by January 31 of the following year.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders if shareholders fail to
provide the fund with their correct taxpayer identification number or to make
required certifications, or if shareholders have been notified by the Internal
Revenue Service that they are subject to backup withholding. Any such withheld
amounts may be credited against your U.S. federal income tax liability.
Shareholders of a fund may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. Shareholders should consult your
tax advisor regarding the particular tax consequences of an investment in a
fund.
33
<PAGE>
Transaction information
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading.
Market prices are used to determine the value of the funds' assets. If market
prices are not readily available for a security or if a security's price is not
considered to be market indicative, that security may be valued by another
method that the Board or its delegate believes accurately reflects fair value.
In those circumstances where a security's price is not considered to be market
indicative, the security's valuation may differ from an available market
quotation.
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class, less all liabilities of that class, by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a fund will generally be lower than that of the
Class A shares of the fund because of the higher annual expenses borne by the
Class B and Class C shares.
To the extent that the funds invest in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the funds do not price
their shares. As a result, the net asset value per share of the funds may change
at a time when shareholders are not able to purchase or redeem their shares.
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from
34
<PAGE>
receipt by a fund of the purchase amount. The redemption of shares within
certain time periods may be subject to contingent deferred sales charges, as
noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares and the proceeds are payable to the shareholder of record at the address
of record. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The funds will normally send
you the proceeds within one business day following your request, but may take up
to seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. Each 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, each fund may temporarily suspend the
offering of its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors, Inc.),
35
<PAGE>
that member may charge a fee for that service. This prospectus should be read in
connection with such firms' material regarding their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
("redemptions in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
36
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the funds' financial
performance for the periods reflected below. Certain information reflects the
financial results for a single fund share. The total return figures show what a
shareholder in a fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP, whose
report, along with the fund's financial statements, are included in each fund's
annual report, which is available upon request by calling Kemper at
1-800-621-1048.
- --------------------------------------------------------------------------------
Kemper Large Company Growth Fund
- --------------------------------------------------------------------------------
For the period from
December 31, 1998
(commencement of operations)
Class A to August 31, 1999
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of year
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss
- --------------------------------------------------------------------------------
Net realized and unrealized loss
- --------------------------------------------------------------------------------
Total from investment operation
- --------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------
Total return (not annualized)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Net assets at end of period
- --------------------------------------------------------------------------------
Portfolio turnover rate
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to waive temporarily and absorb certain
operating expenses of the fund. The other ratios to average net assets are
computed without this expense absorption.
37
<PAGE>
- --------------------------------------------------------------------------------
Kemper Research Fund
- --------------------------------------------------------------------------------
For the period from
December 31, 1998
(commencement of operations)
Class A to August 31, 1999
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of year
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss
- --------------------------------------------------------------------------------
Net realized and unrealized loss
- --------------------------------------------------------------------------------
Total from investment operation
- --------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------
Total return (not annualized)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Net assets at end of period
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized)
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to waive temporarily and absorb certain
operating expenses of the fund. The other ratios to average net assets are
computed without this expense absorption.
38
<PAGE>
- -------------------------------------------------------------------------
Kemper Small Cap Growth+Value Fund
- -------------------------------------------------------------------------
For the period from
December 31, 1998
(commencement of operations)
Class A to August 31, 1999
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of year
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss
- --------------------------------------------------------------------------------
Net realized and unrealized loss
- --------------------------------------------------------------------------------
Total from investment operation
- --------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------
Total return (not annualized)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Net investment loss
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Net assets at end of period
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized)
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to waive temporarily and absorb certain
operating expenses of the fund. The other ratios to average net assets are
computed without this expense absorption.
39
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries can be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
information on fund investments and operations. The Shareholder Services Guide
contains more information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the funds'
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- ----------------------------------------------------------------------------
By Phone Call Kemper at: 1-800-621-1048
- ----------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
- ----------------------------------------------------------------------------
In Person Public Reference Room
Securities and Exchange Commission
Washington, D.C.
(Call 1-800-SEC-0330 for more information.)
- ----------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- ----------------------------------------------------------------------------
The Statement of Additional Information dated January 1, 2000 is incorporated by
reference into this prospectus (is legally a part of this prospectus).
Kemper Funds Trust
Investment Company Act file number: 811-09057
40
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2000
Kemper Large Company Growth Fund
Kemper Research Fund
Kemper Small Cap Value+Growth Fund
each a series of
Kemper Funds Trust
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 the funds listed above (the "Funds"). It
should be read in conjunction with the prospectus of the Funds dated January 1,
2000. The prospectus may be obtained without charge from the Funds at the
address or telephone number on this cover or from the firm from which this
Statement of Additional Information was obtained and is also available along
with other related materials at the SEC's Internet web site
(http://www.sec.gov). The Annual Reports, dated August 31, 1999 for Kemper Large
Company Growth Fund, Kemper Research Fund and Kemper Small Cap Value Fund are
incorporated by reference into and are hereby deemed to be a part of this
Statement of Additional Information.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.........................................2
INVESTMENT POLICIES AND TECHNIQUES..............................3
BROKERAGE COMMISSIONS..........................................13
INVESTMENT MANAGER AND UNDERWRITER.............................15
PURCHASE AND REDEMPTION OF SHARES..............................18
ADDITIONAL TRANSACTION INFORMATION.............................18
DIVIDENDS AND TAXES............................................21
NET ASSET VALUE................................................25
PERFORMANCE....................................................26
OFFICERS AND TRUSTEES..........................................27
PRINCIPAL HOLDERS OF SECURITIES................................29
SHAREHOLDER RIGHTS.............................................29
FINANCIAL STATEMENTS...........................................31
THESE FUNDS ARE AVAILABLE ONLY TO EMPLOYEES OF SCUDDER KEMPER INVESTMENTS, INC.
IN THE FOLLOWING STATES: CALIFORNIA, CONNECTICUT, FLORIDA, ILLINOIS, KANSAS,
MASSACHUSETTS, MISSOURI, NEW HAMPSHIRE, NEW JERSEY AND NEW YORK.
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of the Fund's outstanding voting
shares. As defined in the Investment Company Act of 1940 (the "1940 Act"), this
means the lesser of the vote of (a) 67% of the shares of 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.
Except as otherwise indicated, each Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the
particular Fund remains an appropriate investment in light of their then current
financial position and needs. There can be no assurance that each Fund's
objective will be met.
As a matter of fundamental policy, each Fund has elected to be classified as a
diversified series of a registered open-end management investment company.
Each 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 Board of Trustees has voluntarily adopted certain policies and restrictions
which are observed in the conduct of the Funds' affairs. These represent
intentions of the Trustees based upon current circumstances. They differ from
fundamental investment policies in that they may be changed or amended by action
of the Trustees without requiring prior notice to or approval of shareholders.
As a matter of non-fundamental policy, each Fund may not:
(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.
2
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
These Funds are available only to Scudder Kemper Investments, Inc. employees in
the following states: California, Connecticut, Florida, Illinois, Kansas,
Massachusetts, Missouri, New Hampshire, New Jersey and New York. It is
contemplated that, in the future, a Fund's shares may be sold to the public, in
which case the inflow of additional capital may make it more difficult for the
Fund's management to implement the Fund's investment strategies and for the fund
to maintain its level of performance.
General. Each Fund is a diversified series of shares of beneficial interest of
Kemper Funds Trust (the "Trust"), an open-end, registered management investment
company.
There is no assurance that the investment objective of any Fund will be achieved
and investment in each Fund includes risks that vary in kind and degree
depending upon the investment policies of that Fund. The returns and net asset
value of each Fund will fluctuate.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Fund may engage (such as hedging,
etc.) or a financial instrument which a Fund may purchase (such as options,
forward foreign currency contracts, etc.) are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Adviser"), in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. The Adviser may, in its discretion, at any time employ such practice,
technique or instrument for one or more funds but not for all funds advised by
it. Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
Common Stocks. Under normal circumstances, each Fund invests primarily 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,
each 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 and financial market movements. Despite the risk of price
volatility, however, common stocks have traditionally offered a greater
potential for gain on investment, compared to other classes of financial assets
such as bonds or cash equivalents.
Warrants. Each Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by a Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Convertible Securities. Each of the Funds may invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can
provide an opportunity for capital appreciation and/or income through interest
and dividend payments by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible
3
<PAGE>
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Repurchase Agreements. Each of the Funds may enter into repurchase agreements
with member banks of the Federal Reserve System, any foreign bank, if the
repurchase agreement is fully secured by government securities of the particular
foreign jurisdiction, or with any domestic or foreign broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the relevant Fund may purchase, or to be at
least equal to that of issuers of commercial paper rated within the two highest
grades assigned by Moody's or S&P.
A repurchase agreement provides a means for a Fund to earn income on assets for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities kept at least equal to the repurchase price on
a daily basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price upon repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Custodian or in the Federal Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Fund to the seller of the Obligation subject to the repurchase agreement and
is therefore subject to that Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and the Fund
has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case a Fund may incur a loss if the proceeds to a Fund of the sale to a third
party are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), a Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that a Fund will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
Foreign Securities. Each of the Funds may invest in foreign securities. The
Adviser believes that diversification of assets on an international basis may
decrease the degree to which events in any one country, including the U.S., will
affect an investor's entire investment holdings. In certain periods since World
War II, many leading foreign economies and foreign stock market indices have
grown more rapidly than the U.S. economy and leading U.S. stock market indices,
although there can be no assurance that this will be true in the future.
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect a Fund's performance. As foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those
4
<PAGE>
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity, have
substantially less volume than the U.S. market, and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than in the
U.S. and, at times, volatility of price can be greater than in the U.S. Fixed
commissions on some foreign securities exchanges and bid to asked spreads in
foreign bond markets are generally higher than commissions or bid to asked
spreads on U.S. markets, although a Fund will endeavor to achieve the most
favorable net results on its portfolio transactions. There is generally less
governmental supervision and regulation of securities exchanges, brokers and
listed companies in foreign countries than in the U.S. It may be more difficult
for a Fund's agents to keep currently informed about corporate actions in
foreign countries which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities without delivery may be required in certain foreign markets. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The management of a Fund seeks to mitigate the risks
associated with the foregoing considerations through continuous professional
management.
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of the portfolios. The
Euro was introduced on January 1, 1999 by eleven members countries of the
European Economic and Monetary Union (EMU). The introduction of the Euro
requires the redenomination of European debt and equity securities over a period
of time, which may result in various accounting differences and/or tax
treatments which would not otherwise occur. Additional questions are raised by
the fact that certain other European Community members, including the United
Kingdom, did not officially implement the Euro on January 1, 1999.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Funds may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of a
Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
a Fund may incur costs in connection with conversions between various
currencies. Although a Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. 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. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to resell
that currency to the dealer. A 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 market, or through entering into options or
forward or futures contracts to purchase or sell foreign currencies.
Borrowing. As a matter of fundamental policy, the Funds will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Funds do not currently intend to borrow for investment leveraging purposes,
if such a strategy were implemented in the future it would increase a Fund's
volatility and the risk of loss in a declining market. Borrowing by the Funds
will involve special risk considerations. Although the principal of a Fund's
borrowing will be fixed, a Fund's assets may change in value during the time a
borrowing is outstanding, thus increasing exposure to capital risk.
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers, and are required to be secured continuously by collateral in
cash, U.S. Government securities and high grade debt obligations, maintained on
a current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. A Fund has the right to call a loan and
obtain the securities loaned on no more than five days' notice. During the
existence of a loan, a Fund continues to receive the equivalent of any
distributions paid by the
5
<PAGE>
issuer on the securities loaned and also receives compensation based on
investment of the collateral. 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 may be made only
to firms deemed by the Adviser to be of good standing and will not be made
unless, in the judgment of the Adviser, the consideration to be earned from such
loans would justify the risk.
Indexed Securities. The Funds may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.
Indexed securities differ from other types of debt securities in which a Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying the indexed
securities.
Real Estate Investment Trusts ("REITs"). Each of the Funds may invest in REITs.
REITs are sometimes informally characterized as equity REITs, mortgage REITs and
hybrid REITs. Investment in REITs may subject a Fund to risks associated with
the direct ownership of real estate, such as decreases in real estate values,
overbuilding, increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent and fluctuations in rental income.
Equity REITs generally experience these risks directly through fee or leasehold
interests, whereas mortgage REITs generally experience these risks indirectly
through mortgage interests, unless the mortgage REIT forecloses on the
underlying real estate. Changes in interest rates may also affect the value of a
Fund's investment in REITs. For instance, during periods of declining interest
rates, certain mortgage REITs may hold mortgages that the mortgagors elect to
prepay, which prepayment may diminish the yield on securities issued by those
REITs.
Certain REITs have relatively small market capitalizations, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the registration requirements of the
1940 Act. By investing in REITs indirectly through a Fund, a shareholder will
bear not only his or her proportionate share of the expenses of a Fund's, but
also, indirectly, similar expenses of the REITs. In addition, REITs depend
generally on their ability to generate cash flow to make distributions to
shareholders.
Illiquid Securities. Each Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. The absence of a
trading market can make it difficult to ascertain a market value for these
investments. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of a Fund. It is each Fund's policy that
illiquid securities (including repurchase agreements of more than seven days
duration, certain restricted securities, and other securities which are not
readily marketable) may not constitute, at the time of purchase, more than 15%
of the value of the Fund's net assets. A security is deemed illiquid if so
determined pursuant to procedures adopted by the Board of Trustees.
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Generally speaking, restricted securities may be sold (i) only to qualified
institutional buyers; (ii) in a privately negotiated transaction to a limited
number of purchasers; (iii) in limited quantities after they have been held for
a specified period of time and other conditions are met pursuant to an exemption
from registration; or (iv) in a public offering for which a registration
statement is in effect under the 1933 Act. Issuers of restricted securities may
not be subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between a Fund's decision to sell a
restricted or illiquid security and the point at which the Fund is permitted or
able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, a Fund may be required to
bear all or part of the registration expenses. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public and, in such event, the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
Strategic Transactions and Derivatives. Each of the Funds may, but is not
required to, utilize various other investment strategies as described below for
a variety of purposes, such as hedging various market risks, managing the
effective maturity or duration of fixed-income securities in a Fund's portfolio,
or enhancing potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors.
In the course of pursuing these investment strategies, a Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon, enter into various transactions such as swaps,
caps, floors , collars, currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures and various other
currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, Strategic Transactions may also include new
techniques, investments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect a Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of fixed-income securities in a
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of a Fund's assets will be committed to Strategic Transactions
entered into for this purpose. Any or all of these investment techniques may be
used at any time and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of a
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Funds will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions will not be used to alter the fundamental investment purposes and
characteristics of a Fund and each Fund will segregate assets (or as provided by
applicable regulations, enter into certain offsetting positions) to cover its
obligations under options, futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements
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of futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized to create leveraged exposure in the Fund.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving a Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. A Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect a Fund against
an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. A Fund is
authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an OCC or
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized
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terms and performance mechanics, all of the terms of an OTC option, including
such terms as method of settlement, term, exercise price, premium, guarantees
and security, are set by negotiation of the parties. A Fund will only sell OTC
options (other than OTC currency options) that are subject to a buy-back
provision permitting a Fund to require the Counterparty to sell the option back
to a Fund at a formula price within seven days. A Fund expects generally to
enter into OTC options that have cash settlement provisions, although not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing no
more than 15% of its net assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a Fund's income. The sale of put options can also provide income.
A Fund may purchase and sell call options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, corporate debt securities,
equity securities (including convertible securities) and Eurodollar instruments
that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., a Fund must own the
securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund exposes a Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require a Fund to hold a security or
instrument which it might otherwise have sold.
A Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. A
Fund will not sell put options if, as a result, more than 50% of a Fund's assets
would be required to be segregated to cover its potential obligations under such
put options other than those with respect to futures and options thereon. In
selling put options, there is a risk that a Fund may be required to buy the
underlying security at a disadvantageous price above the market price.
General Characteristics of Futures. Each of the Funds may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
A Fund's use of futures and options thereon will in all cases be consistent with
applicable regulatory requirements and in particular the rules and regulations
of the Commodity Futures Trading Commission and will be entered into for bona
fide hedging, risk management (including duration management) or other portfolio
management and return enhancement purposes. Typically, maintaining a futures
contract or selling an option thereon requires a Fund to deposit with a
financial
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intermediary as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
A Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of a Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. Each of the Funds
also may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Standard & Poor's Depositary Receipts ("SPDRs"). Each of the Funds may also
invest in SPDRs. SPDRs typically trade like a share of common stock and provide
investment results that generally correspond to the price and yield performance
of the component common stocks of the S&P 500 Index. There can be no assurance
that this can be accomplished as it may not be possible for the trust to
replicate and maintain exactly the composition and relative weightings of the
S&P 500 Index securities. SPDRs are subject to the risks of an investment in a
broadly based portfolio of common stocks, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of such
investment. SPDRs are also subject to risks other than those associated with an
investment in a broadly based portfolio of common stocks in that the selection
of the stocks included in the trust may affect trading in SPDRs, as compared
with trading in a broadly based portfolio of common stocks.
Currency Transactions. Each of the Funds may engage in currency transactions
with Counterparties in order to hedge or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. A Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations of which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
A Fund's dealings in forward currency contracts and other currency transactions
such as futures, options, options on futures and swaps generally will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of a Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities or the receipt
of income therefrom. Position hedging is entering into a currency transaction
with respect to portfolio security positions denominated or generally quoted in
that currency.
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A Fund generally will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
A Fund may also cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which a Fund has or in which a Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of a Fund's securities denominated in linked
currencies. For example, if the Adviser considers that the Austrian schilling is
linked to the German deutschemark (the "D-mark"), a Fund holds securities
denominated in schillings and the Adviser believes that the value of schillings
will decline against the U.S. dollar, the Adviser may enter into a contract to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to a Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived linkage between various currencies
may not be present or may not be present during the particular time that a Fund
is engaging in proxy hedging. If a Fund enters into a currency hedging
transaction, a Fund will comply with the asset segregation requirements
described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each of the Funds may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of a Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Funds may enter are interest rate, currency , index and other swaps and the
purchase or sale of related caps, floors and collars. The Funds expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. The Funds will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream a Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from
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the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
A Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as a Fund will segregate
assets (or enter into any offsetting position) to cover obligations under swaps,
the Adviser and the Fund believe such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to its borrowing restrictions. A Fund will not enter into any swap, cap,
floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from another NRSRO or is determined to be of equivalent credit quality by
the Adviser. If there is a default by the Counterparty, a Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. Each of the Funds may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate liquid assets with
its custodian to the extent a Fund's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, either the full amount of any obligation by a Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid securities at least equal to the
current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by a Fund will require a Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid securities
sufficient to purchase and deliver the securities if the call is exercised. A
call option sold by a Fund on an index will require a Fund to own portfolio
securities which correlate with the index or to segregate liquid assets equal to
the excess of the index value over the exercise price on a current basis. A put
option written by a Fund requires a Fund to segregate liquid assets equal to the
exercise price.
Except when a Fund enters into a forward contract for the purchase or sale of a
security denominated in a particular currency, which requires no segregation, a
currency contract which obligates a Fund to buy or sell currency will generally
require a Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to a Fund's obligations or to segregate
liquid assets equal to the amount of a Fund's obligation.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when a Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case
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of a non cash-settled put, the same as an OCC guaranteed listed option sold by a
Fund, or the in-the-money amount plus any sell-back formula amount in the case
of a cash-settled put or call. In addition, when a Fund sells a call option on
an index at a time when the in-the-money amount exceeds the exercise price, a
Fund will segregate, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess. OCC issued and exchange listed
options sold by a Fund other than those above generally settle with physical
delivery, or with an election of either physical delivery or cash settlement
and, in connection with such options, a Fund will segregate an amount of assets
equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, a Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each swap on a daily
basis and will segregate an amount of cash or liquid securities having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. A Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by a Fund. Moreover, instead of segregating assets if a Fund held a futures
or forward contract, it could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Small Company Risk. Each fund, particularly Kemper Small Cap Value+Growth Fund,
may purchase the securities of small companies. The Adviser believes that small
companies often have sales and earnings growth rates which exceed those of
larger companies, and that such growth rates may in turn be reflected in more
rapid share price appreciation over time. However, investing in smaller company
stocks involves greater risk than is customarily associated with investing in
larger, more established companies. For example, smaller companies can have
limited product lines, markets, or financial and managerial resources. Smaller
companies may also be dependent on one or a few key persons, and may be more
susceptible to losses and risks of bankruptcy. Also, the securities of the
smaller companies in which certain Funds may invest, may be thinly traded (and
therefore have to be sold at a discount from current market prices or sold in
small lots over an extended period of time). Transaction costs in smaller
company stocks may be higher than those of larger companies.
Temporary Defensive Positions. For temporary defensive purposes the funds may
invest without limit in cash and cash equivalents , U.S. Government Securities,
money market instruments and high quality debt securities without equity
features. In such case, the funds would not be pursuing, and may not achieve,
their objective..
Master/Feeder Fund Structure. The Board of Trustees may determine, without
further shareholder approval, in the future that the objective of a Fund would
be achieved more effectively by investing in a master fund in a master/feeder
fund structure. A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. An
existing investment company is able to convert to a feeder fund by selling all
of its investments, which involves brokerage and other transaction costs and the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.
BROKERAGE COMMISSIONS
Allocation of brokerage is supervised by the Adviser.
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<PAGE>
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Fund is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. The Adviser
routinely reviews commission rates, execution and settlement services performed
and makes internal and external comparisons.
The Funds' 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 a 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 brokerage and research services to the Adviser or a
Fund. The term "research services" 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, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Adviser has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or a Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), which is a corporation registered as a broker/dealer and a subsidiary
of the Adviser; SIS will place orders on behalf of the Funds with issuers,
underwriters or other brokers and dealers. The SIS will not receive any
commission, fee or other remuneration from the Funds for this service.
Although certain research services from broker/dealers may be useful to a Fund
and to the Adviser, it is the opinion of the Adviser that such information only
supplements the Adviser's 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 a Fund, and
not all such information is used by the Adviser in connection with a 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 a Fund.
The Trustees review, from time to time, whether the recapture for the benefit of
the Funds of some portion of the brokerage commissions or similar fees paid by
the Funds on portfolio transactions is legally permissible and advisable.
For the nine month fiscal period ended August 31, 1999, Kemper Large Company
Growth Fund paid brokerage commissions of _______. For the nine month fiscal
period ended August 31, 1999, the Fund paid brokerage commissions of $______
(_____)% of the total brokerage commissions), resulting from orders placed,
consistent with the policy of seeking to obtain the most favorable net results,
for transactions placed with brokers and dealers who provided supplementary
research services to the Trust or Adviser. The total amount of brokerage
transactions aggregated, for the 9 month fiscal period ended August 31, 1999,
was _________, of which ______ % of all brokerage transactions were transactions
which included research commissions.
For the nine month fiscal period ended August 31, 1999, Kemper Research Fund
paid brokerage commissions of _______,. For the nine month fiscal period ended
August 31, 1999, the Fund paid brokerage commissions of $______
14
<PAGE>
(_____)% of the total brokerage commissions), resulting from orders placed,
consistent with the policy of seeking to obtain the most favorable net results,
for transactions placed with brokers and dealers who provided supplementary
research services to the Trust or Adviser. The total amount of brokerage
transactions aggregated, for the 9 month fiscal period ended August 31, 1999,
was _________, of which ______ % of all brokerage transactions were transactions
which included research commissions.
For the nine month fiscal period ended August 31, 1999, Kemper Small Cap
Value+Growth Fund paid brokerage commissions of _______,. For the nine month
fiscal period ended August 31, 1999, the Fund paid brokerage commissions of
$______ (_____)% of the total brokerage commissions), resulting from orders
placed, consistent with the policy of seeking to obtain the most favorable net
results, for transactions placed with brokers and dealers who provided
supplementary research services to the Trust or Adviser. The total amount of
brokerage transactions aggregated, for the 9 month fiscal period ended August
31, 1999, was _________, of which ______ % of all brokerage transactions were
transactions which included research commissions.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345
Park Avenue, New York, New York, is each Fund's investment manager. Scudder
Kemper 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 investment
management agreements, Scudder Kemper acts as each Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of a Fund if elected to such positions. Each investment
management agreement provides that each Fund pays the charges and expenses of
its operations, including the fees and expenses of the trustees (except those
who are affiliated with officers or employees of Scudder Kemper), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records related thereto, taxes and membership dues. Each Fund bears
the expenses of registration of its shares with the Securities and Exchange
Commission, while Kemper Distributors, Inc., as principal underwriter, pays the
cost of qualifying and maintaining the qualification of each Fund's shares for
sale under the securities laws of the various states.
The investment management agreements provide that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under each agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually (a) by a majority
of the trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. Each 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
an 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.
In certain cases the investments for the Funds are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser
that have similar names, objectives and investment styles as a Fund. You should
be aware that the Funds are likely to differ from these other mutual funds in
size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Funds can be expected to vary from those of the other mutual
funds.
At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich, and Scudder changed its name to Scudder Kemper
Investments, Inc. As a result of the transaction, Zurich owned approximately 70%
of the Adviser, with the balance owned by the Adviser's officers and employees.
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<PAGE>
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services, Inc. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Kemper Research Fund and Kemper Large Company Growth Fund each pays the Adviser
an annual fee as a percentage of the fund's average daily net assets for
providing investment management services, as described in the following table:
Applicable Assets ($) Annual Fee Rate
--------------------- ---------------
0 - 250,000,000 0.70%
250,000,000 - 1,000,000,000 0.67%
1,000,000,000 - 2,500,000,000 0.65%
More than 2,500,000,000 0.63%
Kemper Small Cap Value+Growth Fund pays the Adviser an annual fee as a
percentage of the fund's average daily net assets for providing investment
management services, as described in the following table:
Applicable Assets ($) Annual Fee Rate
--------------------- ---------------
0 - 250,000,000 0.75%
250,000,000 - 1,000,000,000 0.72%
1,000,000,000 - 2,500,000,000 0.70%
More than 2,500,000,000 0.68%
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share of the Funds and maintaining all accounting records related
thereto. Currently, SFAC receives an annual fee of 2.50% of 1% of average daily
net assets for the first $150 million of fund net assets, 0.75 of 1% of average
daily net assets for the next $850 million of fund net assets, and 0.45 of 1% of
average daily net assets for the excess over $1 billion of fund net assets for
its services to the Funds.
Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, a wholly owned subsidiary
of Scudder Kemper, is the principal underwriter and distributor for the shares
of each Fund and acts as agent of each Fund in the continuous offering of its
shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. Each Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI, as principal underwriter, pays for
the printing and distribution of copies thereof used in connection with the
offering of shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of 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 agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without penalty by a Fund or by
KDI upon 60 days' notice. Termination by a Fund with respect to a class may be
by vote of a majority of the Board 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 class of the Fund, as defined under the 1940 Act. The
agreement may not be amended for a class to increase the fee to be paid by a
Fund with respect to such class without approval by a majority of the
outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a Fund by Fund basis and for each Fund on a class
by class basis.
Rule 12b-1 Plans. The Trust has adopted on behalf of the Funds, in accordance
with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans
pertaining to each Fund's Class B and Class C shares (each a "Plan"). Under each
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Plan, the Fund pays KDI a distribution fee, payable monthly, at the annual rate
of 0.75% of the average daily net assets attributable to its Class B or Class C
shares. Under each Plan, KDI may compensate various financial services firms
("Firms") for sales of Fund shares and may pay other commissions, fees and
concessions to such Firms. The distribution fee compensates KDI for expenses
incurred in connection with activities primarily intended to result in the sale
of a Fund's Class B or Class C shares, including the printing of prospectuses
and reports for persons other than existing shareholders and the preparation,
printing and distribution of sales literature and advertising materials.
Among other things, each Plan provides that KDI will prepare reports for the
Board on a quarterly basis for each class showing amounts paid to the various
Firms and such other information as the Board may reasonably request. Each Plan
will continue in effect indefinitely, provided that such continuance is approved
at least annually by vote of a majority of the Board of Trustees, and a majority
of the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Funds and who have no direct or indirect financial interest in the operation
of the Plan ("Qualified Board Members"), cast at an in-person meeting called for
such purpose, or by vote of at least a majority of the outstanding voting
securities of the applicable class. Any material amendment to a Plan must be
approved by vote of a majority of the Board of Trustees, and of the Qualified
Board Members. An amendment to a Plan to increase materially the amount to be
paid to KDI by a Fund for distribution services with respect to the applicable
class must be approved by a majority of the outstanding voting securities of
that class. While each Plan is in effect, the selection and nomination of
Trustees who are not "interested persons" of the Trust shall be committed to the
discretion of the Trustees who are not themselves "interested persons" of the
Trust. If a Plan is terminated (or not renewed) with respect to either class,
the Plan with respect to the other class may continue in effect unless it also
has been terminated (or not renewed).
Administrative Services. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all of its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to 0.25% of average daily net assets of Class A, B and C shares of each
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 shareholders of a 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,
assisting clients in changing dividend and investment options, account
designations and addresses and providing such other services as may be agreed
upon from time to time and permitted by applicable statute, rule or regulation.
For Class A shares, KDI pays each firm a service fee, normally payable
quarterly, at an annual rate of up to 0.25% of the net assets in Fund accounts
that it maintains and services attributable to Class A shares commencing with
the month after investment. With respect to Class B and Class C shares, KDI
currently advances to firms the first-year service fee at a rate of up to 0.25%
of the purchase price of such shares. For periods after the first year, KDI
currently intends to pay firms a service fee at 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 broker-dealers affiliated with 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 a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fee that it receives
from a Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of a Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. The Board of Trustees of the
Trust, in its discretion, may, with respect to a Fund, approve basing the fee to
KDI on all Fund assets in the future.
Certain trustees or officers of the Trust are also directors or officers of
Scudder Kemper or KDI, as indicated under "Officers and Trustees."
Custodian, Transfer Agent And Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, MA, as custodian, has custody of all
securities and cash of each Fund maintained in the United States. It attends to
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<PAGE>
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by each Fund. Kemper Service Company
("KSvC"), 811 Main Street, Kansas City, MO, an affiliate of Scudder Kemper,
serves as transfer agent and dividend-paying agent and "Shareholder Service
Agent" of each Fund. KSvC receives as transfer agent annual account fees of $10
per account ($18 for retirement accounts) plus account set up, transaction,
maintenance charges, and annual fees associated with the contingent deferred
sales charges and an asset-based fee of 0.08% plus out-of-pocket expense
reimbursement.
Independent Auditors And Reports To Shareholders. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Funds.
PURCHASE AND REDEMPTION OF SHARES
As described in the Funds' prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares, an initial sales charge. The minimum initial investment is $1,000 and
the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time. See the prospectus for certain exceptions to these
minimums. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until the Fund determines that it has received payment of the proceeds of
the check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares, by certain classes of persons or
through certain types of transactions as described in the prospectus, are
provided because of anticipated economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange, Inc. (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
ADDITIONAL TRANSACTION INFORMATION
Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
18
<PAGE>
<TABLE>
<CAPTION>
Sales Charge
As a As a Allowed to Dealers as a
Percentage of Percentage of Net Percentage of
Amount of Purchase Offering Price Asset Value* Offering Price
- ------------------ -------------- ------------ --------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
================= ===== ===== =====
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales
charge as discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all of its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the 1933
Act.
Class A shares of each Fund can be purchased at net asset value in certain
circumstances. (See the Funds' prospectus for details)
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through 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 a Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of a Fund at net asset value under the Large Order NAV Purchase Privilege is not
available if another net asset value purchase privilege also applies.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the 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
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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 each Fund for
services as distributor and principal underwriter for Class C shares. See
"Investment Manager and Underwriter."
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by KSvC,
(iii) the registered representative placing the trade is a member of ProStar, a
group of persons designated by KDI in acknowledgment of their dedication to the
employee benefit plan area; and (iv) the purchase is not otherwise subject to a
commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash , to firms that sell shares of the Funds. In
some instances, such discounts, commissions or other incentives will be offered
only to certain firms that sell or are expected to sell during specified time
periods certain minimum amounts of shares of the Funds, or other funds
underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Funds reserve 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.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This Statement of Additional Information should be read in
connection with such firms' material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made
pursuant to the prospectus and to reject purchase orders. Also, from time to
time, each Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
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Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
the prospectus.
DIVIDENDS AND TAXES
Dividends. Each Fund normally distributes annual dividends of net investment
income as follows. Each Fund distributes any net realized short-term and
long-term capital gains at least annually.
A 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, a Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund 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 portion
for each class.
Taxes. Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified as
such from inception. Each Fund intends to qualify for such treatment. Such
qualification does not involve governmental supervision of management or
investment practices or policies.
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain in excess of net
long-term capital loss) and generally is not subject to federal income tax to
the extent that it distributes annually its investment company taxable income
and net realized capital gains in the manner required under the Code.
Investment company taxable income generally is made up of dividends, interest,
and net short-term capital gains in excess of net long-term capital losses, less
expenses. Net capital gains (the excess of net long-term capital gain over net
short-term capital loss) are computed by taking into account any capital loss
carryforward of the Fund. Presently, the Fund has no capital loss carryforward.
Each 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 at least equal to the sum
of 98% of the Fund's ordinary income for the calendar year, at least 98% of the
excess of its capital gains over capital losses (adjusted for certain ordinary
losses as prescribed in the Code) 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.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Dividends from domestic corporations are expected to comprise a substantial part
of each Fund's gross income. To the extent that such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the dividends received deduction for corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares with respect to
which the dividends are received are treated as debt-financed under the federal
income tax law and is eliminated if either those share or the shares of the Fund
are deemed to have been held by the Fund or the shareholder, as the case may be,
for less than 46 days during the 90 day period beginning 45 days before the
shares become ex-dividend.
Properly designated distributions of net capital gains are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by such shareholders. Such distributions are
not eligible for the dividends received deduction. Any loss realized upon the
redemption of shares held at the time of redemption for six months
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or less will be treated as a long-term capital loss to the extent of any amounts
treated as long-term capital gain distributions during such six-month period.
If any net capital gains are retained by a 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 the federal income taxes paid
by the Fund on such gains as a credit against personal federal income tax
liabilities, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit. However, retention of such gains by the Fund may cause the Fund to be
liable for an excise tax on all or a portion of those gains.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether made 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
gains, whether received in shares or cash, must be reported by each shareholder
on his or her federal income tax return. Dividends declared in October, November
or December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Redemptions of shares,
including exchanges for shares of another Kemper Mutual fund, may result in tax
consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.
An 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
$2,250 to IRAs for an individual and his or her nonearning spouse) 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 treated as a return of nondeductible
contributions will not be taxable. Also, 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 a Fund result in a reduction in the net asset value of that
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 be careful to 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.
If a Fund invests in stock of certain foreign investment companies, the Fund may
be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
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Each 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 losses to the extent of any net mark-to-market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
Equity options (including covered call options written on portfolio stock) and
over-the-counter options on debt securities written or purchased by a Fund will
be subject to tax under Section 1234 of the Code. In general, no loss will be
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
the exercise of a put option, on the Fund's holding period for the underlying
property. 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 a substantially identical security in the Fund's
portfolio.
If a Fund writes a covered call option on portfolio stock, no gain is recognized
upon its receipt of a premium. If the option lapses or is closed out, any gain
or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of a Fund which consist 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 stocks
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by a Fund.
Many or all futures and forward contracts entered into by a Fund and many or all
listed nonequity options written or purchased by a Fund (including options on
debt securities, options on futures contracts, options on foreign currencies and
options on securities indices) 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 generally will be treated as 60%
long-term and 40% short-term capital gain or loss, and on the last day of the
Funds' fiscal year (as well as 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 sold at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term capital
gain or loss. 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. 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 which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or nonequity option or
other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position may be treated as a
"mixed straddle." Mixed straddles are subject to the straddle rules of Section
1092 of the Code and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Notwithstanding any of the foregoing, recent tax law changes may require a 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.
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Similarly, if a 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.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to a
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's
level.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as long-term capital loss to
the extent of any distributions of net capital gains received by the shareholder
with respect to such shares.
A shareholder who has redeemed shares of a Fund or other Kemper Mutual Fund
listed in the prospectus under "Special Features -- Class A Shares -- Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of any Fund or in
shares of a Kemper Mutual Fund within six months of the redemption as described
in the prospectus under "Redemption or Repurchase of Shares -- Reinvestment
Privilege." If redeemed shares were purchased after October 3, 1989 and were
held less than 91 days, then the lesser of (a) the sales charge waived on the
reinvested shares, or (b) the sales charge incurred on the redeemed shares, is
included in the basis of the reinvested shares and is not included in the basis
of the redeemed shares. If a shareholder realized a loss on the redemption or
exchange of a Fund's shares and reinvests in shares of the same Fund 30 days
before or after the redemption or exchange, the transactions may be subject to
the wash sale rules resulting in a postponement of the recognition of such loss
for federal income tax purposes. An exchange of a Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.
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 contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
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.
Income received by a Fund from sources within a foreign country may be subject
to foreign and other withholding taxes imposed by that country.
Each 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
nonexempt 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 a
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 shares, will be reduced by the amounts required to be withheld.
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Shareholders may be subject to state and local taxes on distributions received
from a 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. By January 31 of each year each Fund issues to each shareholder a
statement of the federal income tax status of all distributions.
The Trust is organized as a Massachusetts business trust. Neither the Trust nor
any Fund is expected to be liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that each Fund qualifies as a regulated
investment company under the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
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 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
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,
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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.
PERFORMANCE
The Funds may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares
of a Fund. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the Funds.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B 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 a 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 an investment (assumed below to
be $10,000) ("initial investment") in a Fund's shares on the first day of the
period, either adjusting or not adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "ending value" of that investment
at the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B 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
26
<PAGE>
investment over the period. Total return calculations that do not include the
effect of the sales charge for Class A shares or the contingent deferred sales
charge for Class B and Class C shares would be reduced if such charge were
included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. Each Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. While
the maximum sales charge is normally reflected in the Fund's Class A performance
figures, certain total return calculations may not include such charge and those
results would be reduced if it were included. Class B shares and Class C shares
are sold at net asset value. Redemptions of Class B shares within the first six
years after purchase may be subject to a contingent deferred sales charge that
ranges from 4% during the first year to 0% after six years. Redemption of 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. Returns and net asset value will fluctuate. Factors
affecting each Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce the returns described in this
section. Shares of each Fund are redeemable at the then current net asset value,
which may be more or less than original cost.
In connection with communicating its performance to current or prospective
shareholders, each Fund may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs..
The performance of a Fund may also be compared to the performance of other
mutual funds or mutual fund indexes with similar objectives and policies as
reported by independent mutual fund reporting services. . A 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. A Fund may also describe its portfolio
holdings and depict its size or relative size compared to other mutual funds,
the number and make-up of its shareholder base and other descriptive factors
concerning the Fund. The relative performance of growth stocks versus value
stocks may also be discussed.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from the Fund.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Due to their short maturities, Treasury bills generally experience
very low market value volatility.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates.
The performance information for the Kemper Large Company Growth Fund, Kemper
Research Fund and Kemper Small Company Value+Growth Fund are incorporated herein
by reference to the respective funds' annual report filed with the SEC on
October , 1999.
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with the Adviser and KDI are listed
below:
27
<PAGE>
JAMES E. AKINS (10/15/26), Trustee, 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Officer, Energy Adviser for the White
House; United States Ambassador to Saudi Arabia, 1973-76.
JAMES R. EDGAR ( 7/22/46), Trustee, 1927 County Road 150 E, Seymour, IL;
Distinguished Fellow, University of Illinois Institute of Government and Public
Affairs; formerly, Governor of the State of Illinois, 1991-1998; Illinois
Secretary of State, 1981-1990; Director of Legislative Affairs, Office of the
Governor of Illinois, 1979-1980; Representative in Illinois General Assembly,
1976-1979.
ARTHUR R. GOTTSCHALK (2/13/25), Trustee, 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelly Corp.; formerly, attorney.
FREDERICK T. KELSEY (4/25/27), Trustee, 4010 Arbor Lane, Unit 102, Northfield,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of Northern Institutional; formerly, Trustee of
the Pilot Funds.
THOMAS W. LITTAUER (4/26/55), Trustee, Chairman, and Vice President *, Two
International Place, Boston, Massachusetts; Managing Director, Adviser; Head of
Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.
KATHRYN L. QUIRK (12/3/52), Trustee and Vice President*, 345 Park Avenue, New
York, New York; Managing Director, Adviser.
FRED B. RENWICK (2/1/30), Trustee, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Investment Program, Inc.; Director, the Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church of America.
JOHN G. WEITHERS (8/8/33), Trustee, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.
MARK S. CASADY (9/21/60), President*, Two International Place, Boston,
Massachusetts; 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, Scudder
Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
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.
28
<PAGE>
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).
VALERIE F. MALTER (7/25/58), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser.
CORNELIA SMALL (7/28/44), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
ELIZABETH D. SMITH (10/27/46), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser.
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser.
JAMES M. EYSENBACH (4/1/62), Vice President*, 101 California Street, San
Francisco, California; Managing Director, Adviser.
* "Interested persons" as defined in the 1940 Act.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows estimated amounts
to be paid or accrued to those trustees who are not designated "interested
persons" during the Trust's current fiscal year except that the information in
the last column is for calendar year 1998.
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation Kemper Funds Paid
Name of Board Member from Kemper Funds Trust* to Board Members(3)
- -------------------- ------------------------ -------------------
<S> <C> <C>
James E. Akins $0 $140,800
James R. Edgar (1) $0 $0
Arthur R. Gottschalk(2) $0 $146,300
Frederick T. Kelsey $0 $141,300
Fred B. Renwick $0 $141,300
John G. Weithers $0 $146,300
[Colette G to provide]
</TABLE>
* Estimated
(1) Elected trustee on May 27, 1999
(2) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with a Fund. Deferred amounts accrue interest
monthly at a rate equal to the yield of Zurich Money Funds -- Zurich
Money Market Fund.
Includes compensation for service on the Boards of 13 Kemper funds, with 36 fund
portfolios. Each trustee currently serves as a board member of 15 Kemper Funds
with 51 fund portfolios.
The Board of Trustees is responsible for the general oversight of each Fund's
business. A majority of the Board's members are not affiliated with Scudder
Kemper Investments, Inc.
PRINCIPAL HOLDERS OF SECURITIES
As of July 31, 1999, the trustees and officers as a group, owned less than 1% of
the then outstanding shares of each Fund and no person owned of record 5% or
more of the outstanding shares of any class of any Fund.
SHAREHOLDER RIGHTS
Each Fund is a series of Kemper Funds Trust, a registered open-end management
investment company organized as a business trust under the laws of Massachusetts
on October 14, 1998.
29
<PAGE>
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "funds," 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 funds if deemed
desirable, each with its own investment objective, policies and restrictions.
Since the Trust may offer multiple funds, it is known as a "series company."
Shares of a fund have equal noncumulative voting rights and equal rights with
respect to dividends, assets and liquidation of such fund and are subject to any
preferences, rights or privileges of any classes of shares of the Portfolio.
Currently, the Trust , on behalf of each Fund, offers three classes of shares.
These are Class A, Class B and Class C shares, which have different expenses,
that may affect performance. 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 Funds' Rule 12b-1 Plans. 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 Funds. Shares of the Funds
are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights.
The Funds are not required to hold meetings of their shareholders and have no
current intention to do so. Under the Agreement and Declaration of Trust of the
Trust ("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 shareholder approval is required by the 1940 Act; (c) any termination of
the Trust 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 Trust, 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 Trust with the
Securities and Exchange Commission or any state, or as the trustees may consider
necessary or desirable. The shareholders also would vote upon changes in
fundamental investment objectives, policies or restrictions.
Any matter shall be deemed to have been effectively acted upon with respect to a
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 Funds and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
Shares represented at a meeting if the holders of more than 50% of the
outstanding Shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding Shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the Shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding Shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding Shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Trust 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.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, each
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Trust's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of the Trust and certain amendments of the
Declaration of Trust, would not be affected by this
30
<PAGE>
provision; nor would matters which under the 1940 Act require the vote of a
"majority of the outstanding voting securities" as defined in the 1940 Act.
The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate a Fund or 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 a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
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 a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolios of each Portfolio,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of Kemper
Large Company Growth Fund, Kemper Research Fund and Kemper Small Company
Value+Growth Fund dated August 31, 1999 are incorporated herein by reference and
are hereby deemed to be a part of this Statement of Additional Information.
31
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
<TABLE>
<CAPTION>
Item 23 Exhibits
- ------- --------
<S> <C> <C>
(a) Declaration of Trust, dated October 14, 1998, is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(b) By-Laws, dated October 14, 1998, is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registration Statement.
(c) (1) Establishment and Designation of Series of Beneficial Interest,
dated October 14, 1998, is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registration Statement.
(d) (1) Investment Management Agreement between the Registrant, on behalf
of Kemper Large Company Growth Fund, and Scudder Kemper
Investments, dated December 28, 1998, is incorporated by reference
to Pre-Effective Amendment No. 1 to the Registration Statement.
(2) Investment Management Agreement between the Registrant, on behalf
of Kemper Research Fund, and Scudder Kemper Investments, dated
December 28, 1998, is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement.
(3) Investment Management Agreement between the Registrant, on behalf
of Kemper Small Cap Value+Growth Fund, and Scudder Kemper
Investments, dated December 28, 1998, is incorporated by reference
to Pre-Effective Amendment No. 1 to the Registration Statement.
(e) Underwriting and Distribution Services Agreement between the
Registrant and Kemper Distributors, Inc., dated December 28, 1998
is incorporated by reference to Pre-Effective Amendment No. 1 to
the Registration Statement.
(f) Inapplicable.
(g) Custody Agreement between the Registrant and State Street Bank and
Trust Company is filed herein.
(h) (1) Agency Agreement dated December 28, 1998 is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(1)(a) Amendment No. 1 the Agency Agreement dated July 15, 1999 is filed
herein.
(2) Administrative Services Agreement, dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
(3) Fund Accounting Services Agreement between the Registrant, on
behalf of Kemper Large Company Growth Fund, and Scudder Fund
2
<PAGE>
Accounting Corp., dated December 28, 1998, is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(4) Fund Accounting Services Agreement between the Registrant, on
behalf of Kemper Research Fund, and Scudder Fund Accounting Corp.,
dated December 28, 1998, is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registration Statement.
(5) Fund Accounting Services Agreement between the Registrant, on
behalf of Kemper Small Cap Value+Growth Fund, and Scudder Fund
Accounting Corp., dated December 28, 1998, is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(i) Opinion and Consent of Legal Counsel.
(To be filed by Amendment.)
(j) Consent of Independent Accountants.
(To be filed by Amendment.)
(k) Inapplicable.
(l) Inapplicable.
(m) (1) 12b-1 Plan between Kemper Large Company Growth Fund (Class B
shares) and Kemper Distributors, Inc., dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
(2) 12b-1 Plan between Kemper Large Company Growth Fund (Class C
shares) and Kemper Distributors, Inc., dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
(3) 12b-1 Plan between Kemper Research Fund (Class B shares)and Kemper
Distributors, Inc., dated December 28, 1998, is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(4) 12b-1 Plan between Kemper Research Fund (Class C shares) and Kemper
Distributors, Inc., dated December 28, 1998, is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement.
(5) 12b-1 Plan between Kemper Small Cap Value+Growth Fund (Class B
shares) and Kemper Distributors, Inc., dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
(6) 12b-1 Plan between Kemper Small Cap Value+Growth Fund (Class C
shares) and Kemper Distributors, Inc., dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
(n) Inapplicable
3
<PAGE>
(o) Multi-Distribution System Plan, dated December 28, 1998, is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
</TABLE>
Item 24. Persons Controlled or under Common Control with Fund.
- -------- -----------------------------------------------------
None
Item 25. Indemnification
- -------- ---------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the Underwriting Agreement dated May 6, 1998
(filed as Exhibit No. 6(c) to the Registration Statement),
Scudder Investor Services, Inc. (formerly "Scudder Fund
Distributors, Inc."), as principal underwriter of the
Registrant, may be indemnified against certain liabilities
that it may incur. Said Article IV of the By-Laws and Section
12 of the Underwriting Agreement are hereby incorporated by
reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. 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 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
4
<PAGE>
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director, Vice President and Chief Information Officer, 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
5
<PAGE>
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters
- -------- ----------------------
(a) Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b) Information on the officers and directors of Kemper
Distributors, Inc., principal underwriter for the Registrant is set
forth below. The principal business address is 222 South Riverside
Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer and Vice President
Vice Chairman
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer & Vice President
James J. McGovern Chief Financial Officer & Treasurer None
Linda J. Wondrack Vice President & Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Herbert A. Christiansen Vice President None
Robert A. Rudell Vice President None
6
<PAGE>
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Michael E. Harrington Managing Director None
William M. Thomas Managing Director None
Robert Froehlich Managing Director None
Michael Curran Managing Director None
C. Perry Moore Managing Director None
Lorie O'Malley Managing Director None
David Swanson Managing Director None
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
Mark S. Casady Director, Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of the
Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services
- -------- -------------------
Not applicable.
Item 30. Undertakings
- -------- ------------
Not applicable.
7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(a) 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 15th of October, 1999.
KEMPER FUNDS 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Mark S. Casady
- --------------------------------------
Mark S. Casady President (Principal Executive October 15, 1999
Officer)
/s/James E. Akins
- --------------------------------------
James E. Akins* Trustee October 15, 1999
- --------------------------------------
James R. Edgar Trustee October 15, 1999
/s/Arthur R. Gottschalk
- --------------------------------------
Arthur R. Gottschalk* Trustee October 15, 1999
/s/Frederick T. Kelsey
- --------------------------------------
Frederick T. Kelsey* Trustee October 15, 1999
/s/Thomas W. Littauer
- --------------------------------------
Thomas W. Littauer* Chairman, Trustee and Vice President October 15, 1999
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee and Vice President October 15, 1999
<PAGE>
/s/Fred B. Renwick
- --------------------------------------
Fred B. Renwick* Trustee October 15, 1999
- --------------------------------------
Cornelia M. Small Trustee and Vice President October 15, 1999
/s/John G. Weithers
- --------------------------------------
John G. Weithers* Trustee October 15, 1999
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer (Principal Financial and October 15, 1999
Accounting Officer)
</TABLE>
*By:
---------------------------------------
Philip J. Collora
Attorney-in-fact pursuant to the powers of attorney
for James E. Akins, Arthur R. Gottschalk, Frederick
T. Kelsey, Thomas W. Littauer, Kathryn L. Quirk,
Fred B. Renwick, and John G. Weithers contained
in this Post-Effective Amendment No. 5 to the
Registration Statement.
2
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. 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/ Arthur R. Gottschalk
- -----------------------------
Arthur R. Gottschalk Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. Kane and each of them, severally, or if more
than one acts, a majority of them, his true and lawful attorney and agent to
execute in his name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Frederick T. Kelsey
- -------------------------------
Frederick T. Kelsey Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. Kane and each of them, severally, or if more
than one acts, a majority of them, his true and lawful attorney and agent to
execute in his name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Fred B. Renwick
- --------------------------
Fred B. Renwick Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. Kane and each of them, severally, or if more
than one acts, a majority of them, his true and lawful attorney and agent to
execute in his name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ James E. Akins
- -----------------------------
James E. Akins Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. Kane and each of them, severally, or if more
than one acts, a majority of them, his true and lawful attorney and agent to
execute in his name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John G. Weithers
- --------------------------
John G. Weithers Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 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, her true and lawful attorney and agent to
execute in 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/ Kathryn L. Quirk
- --------------------------
Kathryn L. Quirk Trustee November 18, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
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 J. Collora,
Caroline Pearson, and Maureen E. 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
- ----------------------------
Thomas W. Littauer Trustee November 18, 1998
<PAGE>
File No. 333-65661
File No. 811-09057
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 5
----
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 6
----
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER FUNDS TRUST
8
<PAGE>
KEMPER FUNDS TRUST
EXHIBIT INDEX
(g)
(h)(1)(a)
9
CUSTODIAN CONTRACT
between
KEMPER FUNDS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Employment of Custodian and Property to be Held By It...............1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States.................2
2.1 Holding Securities.........................................2
2.2 Delivery of Securities.....................................2
2.3 Registration of Securities.................................4
2.4 Bank Accounts..............................................5
2.5 Availability of Federal Funds..............................5
2.6 Collection of Income.......................................5
2.7 Payment of Fund Monies.....................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.......................................7
2.9 Appointment of Agents......................................7
2.10 Deposit of Securities in U.S. Securities System............7
2.11 Fund Assets Held in the Custodian's
Direct Paper System........................................8
2.12 Segregated Account.........................................9
2.13 Ownership Certificates for Tax Purposes ..................10
2.14 Proxies...................................................10
2.15 Communications Relating to Portfolio Securities...........10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States............................10
3.1 Appointment of Foreign Sub-Custodians.....................10
3.2 Assets to be Held.........................................11
3.3 Foreign Securities Depositories...........................11
3.4 Agreements with Foreign Banking Institutions..............11
3.5 Access of Independent Accountants of the Fund.............11
3.6 Reports by Custodian......................................11
3.7 Transactions in Foreign Custody Account...................12
3.8 Liability of Foreign Sub-Custodians.......................12
3.9 Liability of Custodian....................................12
3.10 Reimbursement for Advances................................13
3.11 Monitoring Responsibilities...............................13
3.12 Branches of U.S. Banks....................................13
3.13 Tax Law...................................................14
<PAGE>
TABLE OF CONTENTS
-----------------
Page
4. Payments for Sales or Repurchases or Redemptions
of Shares ......................................................14
5. Proper Instructions.............................................14
6. Actions Permitted without Express Authority.....................15
7. Evidence of Authority...........................................15
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income..............16
9. Records.........................................................16
10. Opinion of Fund's Independent Accountants.......................16
11. Reports to Fund by Independent Public Accountants...............16
12. Compensation of Custodian.......................................17
13. Responsibility of Custodian.....................................17
14. Effective Period, Termination and Amendment.....................18
15. Successor Custodian.............................................19
16. Interpretive and Additional Provisions......................... 19
17. Additional Funds................................................20
18. Massachusetts Law to Apply......................................20
19. Prior Contracts.................................................20
20. Shareholder Communications Election.............................20
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Kemper Funds Trust, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts and having its
principal place of business at Two International Place, Boston, Massachusetts
02110 (the "Fund"), and State Street Bank and Trust Company, a Massachusetts
trust company having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently intends to offer shares in three series,
Kemper Large Company Growth Fund, Kemper Research Fund, and Kemper Small Cap
Value+Growth Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
Article 17, being herein referred to as the "Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
of America ("domestic securities") and securities it desires to be held outside
the United States of America ("foreign securities") pursuant to the provisions
of the Fund's declaration of trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or political subdivision thereof
and any territory over which its political sovereignty extends (the "United
States" or
<PAGE>
"U.S."), but only in accordance with an applicable vote by the board
of trustees of the Fund (the "Board of Trustees") on behalf of the applicable
Portfolio(s) and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodians for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A hereto
but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
--------------------------------------------------------------------
the Custodian in the United States
----------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which account
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
2
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
3
<PAGE>
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize reasonable efforts only to
(i) timely collect income
4
<PAGE>
due the Fund on such securities and (ii) notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Collection of income due each Portfolio on
domestic securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund; the Custodian will have
no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data in its possession as may
be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly
entitled.
5
<PAGE>
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6
<PAGE>
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such
7
<PAGE>
securities have been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio; the Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such
securities has been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
8
<PAGE>
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or
9
<PAGE>
any subsequent release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
this clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the executive committee
thereof signed by an officer of the Fund and certified by the Fund's
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three (3) business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
Outside of the United States
----------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt
10
<PAGE>
of Proper Instructions, together with a certified resolution of the
Board of Trustees, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the
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<PAGE>
Portfolio(s) held by foreign sub-custodians, including but not limited
to an identification of entities having possession of Portfolio
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of its
customers indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Portfolio has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency
12
<PAGE>
restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding
the foregoing provisions of this Section 3.9, in delegating custody
duties to State Street London Ltd., the Custodian shall not be relieved
of any responsibility to the Fund for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
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<PAGE>
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be
14
<PAGE>
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. If given pursuant to procedures to be agreed upon by the Custodian
and the Fund, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
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<PAGE>
8. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per share of the
outstanding Shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio(s), shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Prospectus and shall advise the Fund and the Transfer Agent daily of the total
amount of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Prospectus.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting
16
<PAGE>
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
17
<PAGE>
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by such Portfolio, as required
by Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
18
<PAGE>
15. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
19
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Kemper Large Company Growth Fund, Kemper Research Fund, and Kemper
Small Cap Value+Growth Fund with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
-----------------------------------
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of December 30, 1998.
ATTEST KEMPER FUNDS TRUST
/s/Maureen Kane By: /s/Linda J. Wondrack
- ------------------------------ ---------------------------
Name: Maureen Kane Name:
Ass't Sec. Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/Marc L. Parsons By: /s/Ronald E. Logue
- ---------------------------- ----------------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President
21
AMENDMENT NO. 1 TO
AGENCY AGREEMENT
This Amendment No. 1 to the Agency Agreement (the "Agreement") dated as
of December 28, 1998, by and between Kemper Funds Trust, a Massachusetts
business trust, and Kemper Service Company, a Delaware Corporation, is made as
of July 15, 1999.
Pursuant to Section 24.B. of the Agreement, the Agreement is hereby
amended by adding a new Section 5.C. to read as follows:
"C. Service Company shall be contractually bound hereunder by the terms
of any publicly announced fee cap or waiver of its fee or by the terms of any
written document provided to the Board of Trustees of the Fund announcing a fee
cap or waiver of its fee, or any limitation of the Fund's expenses, as if such
fee cap, fee waiver or expense limitation were fully set forth herein."
Except as provided herein, the terms and provisions of the Agreement
shall remain in full force and effect without amendment.
<PAGE>
Executed under seal this 15th day of July 1999.
KEMPER FUNDS TRUST ATTEST:
By: /s/Mark S. Casady /s/Maureen E. Kane
------------------------- -------------------------
Mark S. Casady Title:
President
KEMPER SERVICE COMPANY ATTEST:
By: /s/Michael J. Curran /s/Mara Herrington
------------------------- -------------------------
Title: President Title:
-------------------------
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