<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996.
1933 ACT REGISTRATION NO. 333-
1940 ACT REGISTRATION NO. 811-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. _ / /
Post-Effective Amendment No. _ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. _ / /
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER AGGRESSIVE GROWTH FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 S. Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
Philip J. Collora, Vice President and Secretary With a copy to:
Kemper Aggressive Growth Fund Cathy G. O'Kelly
222 S. Riverside Plaza David A. Sturms
Chicago, Illinois 60606 Vedder, Price, Kaufman & Kammholz
(Name and Address of Agent for Service) 222 North LaSalle Street
Chicago, Illinois 60601
</TABLE>
Approximate Date of Proposed Offering: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Reg. Section 270.24f-2 under the Investment Company Act of
1940, Registrant hereby declares that an indefinite number or amount of shares
are being registered under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
KEMPER AGGRESSIVE GROWTH FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Summary; Summary of Expenses; Supplement to
Prospectus
3. Condensed Financial Information......... Performance
4. General Description of Registrant....... Summary; Investment Objectives, Policies and
Risk Factors; Capital Structure
5. Management of the Fund.................. Summary; Investment Manager and
Underwriter
5A. Management's Discussion of Fund
Performance............................. Inapplicable
6. Capital Stock and Other Securities...... Summary; Dividends and Taxes; Purchase of
Shares; Capital Structure
7. Purchase of Securities Being Offered.... Summary; Investment Manager and Underwriter;
Net Asset Value; Purchase of Shares; Special
Features; Supplement to Prospectus
8. Redemption or Repurchase................ Summary; Redemption or Repurchase of Shares
9. Pending Legal Proceedings............... Inapplicable
</TABLE>
<PAGE> 3
KEMPER EQUITY FUNDS
SUPPLEMENT TO PROSPECTUS
DATED , 1996
CLASS I SHARES
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
Kemper Aggressive Growth Fund ("Aggressive Growth Fund"), Kemper Blue Chip Fund
(the "Blue Chip Fund"), Kemper Growth Fund (the "Growth Fund"), Kemper
Quantitative Equity Fund (the "Quantitative Fund"), Kemper Small Capitalization
Equity Fund (the "Small Cap Fund"), Kemper Technology Fund (the "Technology
Fund"), Kemper Total Return Fund (the "Total Return Fund") and Kemper
Value+Growth Fund (the "Value+Growth" Fund) (collectively, the "Funds")
currently offer four classes of shares to provide investors with different
purchasing options. These are Class A, Class B and Class C shares, which are
described in the prospectus, and Class I shares, which are described in the
prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Zurich Kemper Investments, Inc.
("ZKI") and its affiliates; and (b) the following investment advisory clients of
ZKI and its investment advisory affiliates that invest at least $1 million in a
Fund: (1) unaffiliated benefit plans, such as qualified retirement plans (other
than individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (3) endowment funds of unaffiliated non-profit organizations. Class I shares
currently are available for purchase only from Kemper Distributors, Inc.,
principal underwriter for the Funds. Share certificates are not available for
Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will be higher for
Class I shares than for Class A, Class B and Class C shares.
The following information supplements the indicated sections of the prospectus.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO ALL FUNDS) CLASS I
- ----------------------------------------------------------------------------------------- -------
<S> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price).................................................... None
Maximum Sales Charge on Reinvested Dividends............................................. None
Redemption Fees.......................................................................... None
Exchange Fee............................................................................. None
Deferred Sales Charge (as a percentage of redemption proceeds)........................... None
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ANNUAL FUND
OPERATING EXPENSES AGGRESSIVE BLUE SMALL TOTAL VALUE+
(AS A PERCENTAGE OF AVERAGE GROWTH CHIP GROWTH QUANTITATIVE CAP TECHNOLOGY RETURN GROWTH
NET ASSETS) FUND FUND FUND FUND FUND FUND FUND FUND
---------- ---- ------ ------------ ----- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees............... % .58% .54% .58% .73% .56% .54% .72%
12b-1 Fees.................... None None None None None None None None
Other Expenses................ % .08% .05% .15% .06% .09% .07% .15%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses...... % .66% .59% .73% .79% .65% .61% .87%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------- ------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a Aggressive Growth $ $
$1,000
investment, assuming (1) 5% annual return and Blue Chip $ $
(2) redemption at the end of each time period: Growth $ $
Quantitative $ $
Small Cap $ $
Technology $ $
Total Return $ $
Value+Growth $ $
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly. The base management fee for the Small Cap Fund is
.65% and is subject to a maximum upward or downward performance adjustment of
.30 of 1%. The table reflects the base management fee for the prior fiscal year
after such adjustment. The Aggressive Growth Fund will commence operations on or
about , 1996; thus, "Other Expenses" shown above for Class I shares
are estimates for the current fiscal year and the expenses shown in the Example
are for only the one and three year periods. See "Investment Manager and
Underwriter" in the prospectus.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE> 5
FINANCIAL HIGHLIGHTS
(1996 financial information to be provided)
No financial information is presented for Class I shares of the Blue Chip Fund
or the Value+Growth Fund since no Class I shares had been issued as of such
Funds' fiscal year end. The Aggressive Growth Fund will commence operations on
or about , 1996.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Kemper Money Funds-- Kemper Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of ZKI and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Kemper Money
Funds--Kemper Money Market Fund who have purchased shares because they are
participants in tax-exempt retirement plans of ZKI and its affiliates may
exchange their shares for Class I shares of "Kemper Mutual Funds" to the extent
that they are available through their plan. Exchanges will be made at the
relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
, 1996
KEF - 1 (12/96)
3
<PAGE> 6
<TABLE>
<S> <C>
TABLE OF CONTENTS
- -----------------------------------------------
Summary 1
- -----------------------------------------------
Summary of Expenses 3
- -----------------------------------------------
Financial Highlights 6
- -----------------------------------------------
Investment Objectives, Policies and Risk
Factors 13
- -----------------------------------------------
Investment Manager and Underwriter 27
- -----------------------------------------------
Dividends and Taxes 31
- -----------------------------------------------
Net Asset Value 32
- -----------------------------------------------
Purchase of Shares 33
- -----------------------------------------------
Redemption or Repurchase of Shares 38
- -----------------------------------------------
Special Features 43
- -----------------------------------------------
Performance 46
- -----------------------------------------------
Capital Structure 48
- -----------------------------------------------
</TABLE>
This combined prospectus of the Kemper Equity Funds contains information about
each of the Funds that you should know before investing and should be retained
for future reference. A Statement of Additional Information dated ,
1996, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. It is available upon request without charge
from the Funds at the address or telephone number on this cover or the firm from
which this prospectus was obtained. Kemper Value+Growth Fund is also known as
Kemper Value Plus Growth Fund.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LOGO
KEMPER
EQUITY
FUNDS
PROSPECTUS , 1996
KEMPER EQUITY FUNDS
222 S. Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of eight equity and balanced mutual funds
managed by Zurich Kemper Investments, Inc.
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 7
KEMPER EQUITY FUNDS
222 S. RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The eight open-end, management investment companies (the
"Funds") covered in this combined prospectus are as follows:
KEMPER AGGRESSIVE GROWTH FUND (the "Aggressive Growth Fund") seeks capital
appreciation through the use of aggressive investment techniques.
KEMPER BLUE CHIP FUND (the "Blue Chip Fund") seeks growth of capital and of
income.
KEMPER GROWTH FUND (the "Growth Fund") seeks growth of capital through
professional management and diversification of investment securities having
potential for capital appreciation.
KEMPER QUANTITATIVE EQUITY FUND (the "Quantitative Fund") seeks growth of
capital and reduction of risk through professional management of a diversified
portfolio of equity securities.
KEMPER SMALL CAPITALIZATION EQUITY FUND (the "Small Cap Fund") seeks maximum
appreciation of investors' capital.
KEMPER TECHNOLOGY FUND (the "Technology Fund") seeks growth of capital.
KEMPER TOTAL RETURN FUND (the "Total Return Fund") seeks to obtain the highest
total return, a combination of income and capital appreciation, consistent with
reasonable risk.
KEMPER VALUE+GROWTH FUND (the "Value+Growth Fund") seeks growth of capital
through professional management of a portfolio of growth and value stocks.
Each Fund, except the Aggressive Growth Fund, is a diversified investment
company. The Aggressive Growth Fund is a non-diversified investment company. The
Funds may purchase put and call options, engage in financial futures
transactions, invest in foreign securities, engage in related foreign currency
transactions and lend portfolio securities. The Aggressive Growth, Technology
and Quantitative Funds may also write (sell) put and call options. The Funds may
invest up to 25% of total assets in foreign securities. See "Investment
Objectives, Policies and Risk Factors."
RISK FACTORS. 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. Investment by the Small Cap Fund
primarily in smaller companies and the emphasis of the Technology Fund on
smaller emerging growth technology companies involve greater risk than
investment in larger, more established companies. The flexible investment
strategy employed by the Aggressive Growth Fund and its non-diversified status
involve greater risk than typical diversified equity mutual funds. Foreign
investments by the Funds involve risk and opportunity considerations not
typically associated with investing in U.S. companies. The U.S. Dollar value of
a foreign security tends to decrease when the value of the U.S. Dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the U.S. Dollar falls against such currency. Thus,
the U.S. Dollar value of foreign securities in a Fund's portfolio, and the
Fund's net asset value, may change in response to changes in currency exchange
rates even though the value of the foreign securities in local currency terms
may not have changed. While a Fund's investments in foreign securities will
principally be in developed countries, the Fund may invest a portion of its
assets in developing or "emerging" markets, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A portion of the assets of the
Total Return Fund may be invested in lower rated or unrated high yield bonds
which entail greater risk of loss of principal and interest than higher rated
fixed income securities. There are special risks associated with options,
financial futures and foreign currency transactions and other derivatives and
there is no assurance that use of those investment techniques will be
successful. See "Investment Objectives, Policies and Risk Factors."
1
<PAGE> 8
PURCHASES AND REDEMPTIONS. 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 .50% contingent deferred
sales charge if redeemed during the second year of
purchase.
Class B Shares..............
Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase. Class
B shares automatically convert into Class A shares
(which have lower ongoing expenses) six years after
purchase.
Class C Shares..............
Offered at net asset value without an initial sales
charge, but subject to a Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and investments thereafter
must be at least $100. Shares are redeemable at net asset value, which may be
more or less than original cost, subject to any applicable contingent deferred
sales charge. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Zurich Kemper Investments, Inc. ("ZKI")
serves as investment manager for each Fund. ZKI is paid an investment management
fee by each Fund based upon average daily net assets of that Fund at an
effective annual rate that differs for each Fund. Dreman Value Advisors, Inc.
("DVA"), a wholly owned subsidiary of ZKI, is the sub-advisor for the
Value+Growth Fund and is paid a fee of .25% of average daily net assets of that
Fund by ZKI. Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of
ZKI, is principal underwriter and administrator for each Fund. For Class B
shares and Class C shares, KDI receives a Rule 12b-1 distribution fee of .75% of
average daily net assets. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under administrative services agreements with KDI.
Each Fund pays an administrative services fee at the annual rate of up to .25%
of average daily net assets of each class of the Fund, which KDI pays to
financial services firms. See "Investment Manager and Underwriter."
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Growth, Quantitative, Small Cap,
Technology and Value+Growth Funds; semi-annually for the Blue Chip Fund; and
quarterly for the Total Return Fund. Each Fund distributes any net realized
short-term and long-term capital gains at least annually. Income and capital
gain dividends of a Fund are automatically reinvested in additional shares of
that Fund, without a sales charge, unless the shareholder makes a different
election. See "Dividends and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may make each Fund liable for any
misstatement or omission in this prospectus regardless of the particular Fund to
which it pertains.
2
<PAGE> 9
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS)(1) Class A Class B Class C
------- ------------------------ -------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a
percentage of offering price)................ 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends... None None None
Redemption Fees................................ None None None
Exchange Fee................................... None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)......................... None(3) 4% during the first 1% during the
year, 3% during the first year
second and third years,
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
- -------------------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares -- Initial Sales Charge Alternative -- Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% the first year and .50% the second year. See "Purchase of
Shares -- Initial Sales Charge Alternative -- Class A Shares."
3
<PAGE> 10
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Management Fees....... % .58% .54% .58% .48% .56% .54% .72%
12b-1 Fees............ None None None None None None None None
Other Expenses(6)..... % .72% .63% .90% .66% .32% .58% .90%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ % 1.30% 1.17% 1.48% 1.14% .88% 1.12% 1.62%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Management Fees....... % .58% .54% .58% .48% .56% .54% .75%
12b-1 Fees(4)......... % .75% .75% .75% .75% .75% .75% .75%
Other Expenses(6)..... % .73% .88% .93% .94% .51% .76% .93%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ % 2.06% 2.17% 2.26% 2.17% 1.82% 2.05% 2.40%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Management Fees....... % .58% .54% .58% .48% .56% .54% .60%
12b-1 Fees(5)......... % .75% .75% .75% .75% .75% .75% .75%
Other Expenses(6)..... % .68% .74% .90% .87% .45% .57% .90%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ % 2.01% 2.03% 2.23% 2.10% 1.76% 1.86% 2.25%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- -------------------------
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that is unlikely because of the
automatic conversion feature described under "Purchase of Shares -- Deferred
Sales Charge Alternative -- Class B Shares."
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
(6) Other Expenses have been estimated for the Aggressive Growth Fund for the
current fiscal year.
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the following expenses on a Aggressive Growth
$1,000 investment, assuming (1) 5% annual Blue Chip
return and (2) redemption at the end of Growth
each time period: Quantitative
Small Cap
Technology
Total Return
Value+Growth
</TABLE>
4
<PAGE> 11
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(7)
You would pay the following expenses on Aggressive Growth
a $1,000 investment, assuming (1) 5% Blue Chip
annual return and (2) redemption at the Growth
end of each time period: Quantitative
Small Cap
Technology
Total Return
Value+Growth
You would pay the following expenses on Aggressive Growth
the same investment, assuming no Blue Chip
redemption: Growth
Quantitative
Small Cap
Technology
Total Return
Value+Growth
CLASS C SHARES(8)
You would pay the following expenses on Aggressive Growth
a $1,000 investment, assuming (1) 5% Blue Chip
annual return and (2) redemption at the Growth
end of each time period: Quantitative
Small Cap
Technology
Total Return
Value+Growth
</TABLE>
- -------------------------
(7) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
(8) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was not applicable for any of
the periods shown. See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
base management fee for the Small Cap Fund is .65% and is subject to a maximum
upward or downward performance adjustment of .30%. The table reflects the base
management fee for the prior fiscal year after such adjustment. The Aggressive
Growth Fund will commence operations on , 1996, thus expenses are
shown for only the one and three year periods.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 12
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund, except the Aggressive
Growth Fund, expressed in terms of one share outstanding throughout the period.
The information in the tables for each Fund is covered by the report of the
Fund's independent auditors. The report for each Fund is contained in its
Registration Statement and is available from that Fund. The financial statements
contained in each Fund's 1996 Annual Report to Shareholders are incorporated
herein by reference and may be obtained by writing or calling that Fund. [1996
financial information to be provided]
BLUE CHIP FUND
<TABLE>
<CAPTION>
NOV. 23, 1987
YEAR ENDED OCTOBER 31, TO OCT. 31,
1995 1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.33 13.88 12.72 13.24 9.65 10.07 8.41 9.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .19 .18 .18 .11 .13 .18 .35
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.57 (.71) 1.13 .41 3.63 (.45) 1.78 (.80)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.76 (.52) 1.31 .59 3.74 (.32) 1.96 (.45)
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .19 .15 .14 .15 .10 .30 .14
- ----------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .02 .84 -- .97 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends .22 1.03 .15 1.11 .15 .10 .30 .14
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.87 12.33 13.88 12.72 13.24 9.65 10.07 8.41
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 22.74 (3.82) 10.35 4.76 39.19 (3.23) 24.08 (4.99)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 1.30 1.48 1.25 1.46 1.66 1.91 2.08 1.83
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 1.47 1.50 1.28 1.63 .88 1.28 1.99 4.47
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------- -----------
MAY 31, MAY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.29 12.30 12.32 12.30
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .06 .07 .09
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.56 (.01) 2.62 (.01)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.65 .05 2.69 .08
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .10 .06 .11 .06
- ----------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .02 -- .02 --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends .12 .06 .13 .06
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.82 12.29 14.88 12.32
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 21.76 .42 22.04 .67
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 2.06 2.43 2.01 2.33
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .71 .33 .76 .43
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOV. 23, 1987
YEAR ENDED OCTOBER 31, TO OCT. 31,
1995 1994 1993 1992 1991 1990 1989 1988
----------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of period
(in thousands) $168,266 153,172 196,327 182,553 61,146 32,172 26,164 20,421
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 117 131 222 178 162 93 89 326
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 13
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73 13.07 12.29
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .01 .01 .03 .06 .18 .17 .23 .20 .24
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.27 (1.41) 2.29 .71 4.57 (.79) 2.24 (2.83) 4.13 2.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.32 (1.40) 2.30 .74 4.63 (.61) 2.41 (2.60) 4.33 2.52
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 .05 .11 .18 .23 .21 .10 .30
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .18 1.00 .03 .74 .38 -- -- 3.31 3.57 1.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .18 1.00 .06 .79 .49 .18 .23 3.52 3.67 1.74
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $16.07 12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73 13.07
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 26.07 (9.39) 17.60 5.55 54.13 (6.37) 32.60 (15.15) 44.69 23.37
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.17 1.09 1.00 1.03 1.04 .89 .83 .82 .80 .78
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .24 .06 .32 .59 1.84 2.11 3.38 1.67 1.96
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------- -----------------------------
MAY 31, MAY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.88 13.10 12.88 13.09
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.08) (.03) (.07) (.02)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.23 (.19) 3.24 (.19)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.15 (.22) 3.17 (.21)
- --------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain .18 -- .18 --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.85 12.88 15.87 12.88
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 24.83 (1.68) 24.99 (1.60)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 2.17 2.11 2.03 2.09
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (.57) (.76) (.43) (.67)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of
year (in thousands) $2,503,301 2,255,977 1,826,961 1,419,292 613,245 307,555 335,998 285,485 376,045 275,060
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 67 115 139 83 143 194 160 61 247 181
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 14
QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------- ----------------- -----------------
FEBRUARY 15, 1996 FEBRUARY 15, 1996 FEBRUARY 15, 1996
TO TO TO
MAY 31, 1996 MAY 31, 1996 MAY 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.50 9.50 9.50
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .51 .48 .49
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .51 .48 .49
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.01 9.98 9.99
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.37% 5.05 5.16
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 1.49% 2.45 2.42
- ---------------------------------------------------------------------------------------------------------------------
Net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 15, 1996
TO
MAY 31, 1996
-----------------
<S> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of period $ 2,503,000
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 32%
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period ended May 31, 1996 was $.0592.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 15
SMALL CAP FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992(A) 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69 5.80 4.93
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) (.01) (.02) (.02 ) .02 .05 .10 .05 .09 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.68 (.27) 1.71 .40 1.89 (.86) 1.00 (1.45) 1.82 1.01
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.67 (.28) 1.69 .38 1.91 (.81) 1.10 (1.40) 1.91 1.11
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .01 .06 .11 .05 .13 -- .11
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .34 .36 .49 .47 .29 -- -- 1.50 1.02 .13
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .34 .36 .49 .48 .35 .11 .05 1.63 1.02 .24
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 7.14 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69 5.80
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 30.88 (4.31) 34.11 7.02 55.16 (17.52) 30.58 (17.34) 39.40 23.71
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.14 1.34 1.03 1.28 1.25 .86 .64 .72 .53 .48
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.18) (.76) (.43) (.43 ) .27 1.22 2.55 1.42 1.62 1.83
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------ ------------------------------
MAY 31, MAY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 5.78 5.65 5.77 5.65
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.07) (.02) (.07) (.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.66 .15 1.66 .15
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.59 .13 1.59 .12
- ------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain .34 -- .34 --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.03 5.78 7.02 5.77
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 29.59 2.30 29.65 2.12
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 2.17 2.29 2.10 2.10
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.21) (1.38) (1.14) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $839,905 631,607 510,060 329,116 289,345 179,092 286,411 284,426 353,111 273,736
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 102 58 82 73 126 107 100 90 115 113
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 16
TECHNOLOGY FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993(A) 1992 1991 1990 1989 1988 1987 1986
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76 13.82 11.45
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) -- (.01) .01 .13 .22 .26 .18 .19 .20
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.66 1.49 2.03 .04 3.35 (.45) 1.28 .07 .56 3.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.63 1.49 2.02 .05 3.48 (.23) 1.54 .25 .75 3.23
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .03 .20 .29 .23 .12 .13 .21
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .67 1.29 2.49 .23 .30 .51 2.50 2.68 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.50 .67 1.29 2.52 .43 .59 .74 2.62 2.81 .86
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.63 11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76 13.82
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 47.30 14.95 21.76 .32 38.58 (2.51) 18.19 3.84 6.32 29.79
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .88 .89 .81 .82 .81 .71 .69 .69 .63 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.23) .05 (.06) .07 1.24 2.23 2.92 2.26 1.17 1.58
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------- ----------------------------
MAY 31, MAY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.45 9.99 11.45 9.99
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.15) (.05) (.15) (.05)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.59 1.51 4.65 1.51
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.44 1.46 4.50 1.46
- -------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.50 -- 1.50 --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.39 11.45 14.45 11.45
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 45.65 14.61 46.23 14.61
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 1.82 1.99 1.76 1.83
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.17) (1.08) (1.11) (.92)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $1,017,955 713,654 612,604 559,279 606,295 472,992 532,760 513,800 566,241 598,722
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 105 81 95 95 81 25 39 11 41 37
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 17
TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24 8.78 7.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .19 .30 .22 .36 .46 .37 .36 .27 .33
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 1.46 (1.01) 1.54 .37 2.42 (.64) 1.04 .23 (.55) 1.77
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.75 (.82) 1.84 .59 2.78 (.18) 1.41 .59 (.28) 2.10
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .25 .23 .24 .29 .49 .38 .41 .29 .28 .21
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.08 .44 .30 -- -- -- .20 .98 .39
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .25 1.31 .68 .59 .49 .38 .41 .49 1.26 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.60 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24 8.78
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 19.46 (7.92) 19.08 6.09 37.20 (2.31) 20.00 8.75 (4.18) 30.57
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.12 1.13 1.02 1.06 1.03 .87 .79 .78 .72 .72
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.00 2.34 2.94 2.23 3.96 5.87 4.76 5.10 3.05 4.02
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------- ----------------------------
MAY 31, MAY 31,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.09 9.24 9.09 9.24
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .20 .06 .21 .06
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.46 (.16) 1.48 (.16)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.66 (.10) 1.69 (.10)
- -------------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .16 .05 .17 .05
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.59 9.09 10.61 9.09
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 18.42 (1.06) 18.76 (1.05)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 2.05 2.03 1.86 2.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.07 1.57 2.26 1.60
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $2,926,542 2,864,322 1,509,687 1,212,896 998,465 781,417 937,804 976,972 1,077,369 677,618
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 142 121 180 150 157 157 130 187 171 172
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 18
For the period from October 16, 1995 (initial public offering) to November 30,
1995.
VALUE+GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.50 9.50 9.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .02 .02 .01
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain .50 .50 .50
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .52 .52 .51
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.02 10.02 10.01
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) 5.47 5.47 5.37
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (%):
Expenses 1.35 2.10 2.07
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 2.25 1.50 1.53
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $5,851
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Per share data were determined based on average shares outstanding.
Total return does not reflect the effect of any sales charges. The Funds are
organized as separate Massachusetts business trusts.
12
<PAGE> 19
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. Each Fund's returns and net asset value will fluctuate and there is no
assurance that any Fund will meet its objective.
AGGRESSIVE GROWTH FUND. The Aggressive Growth Fund is a non-diversified
investment company that seeks capital appreciation through the use of aggressive
investment techniques. In seeking to achieve its objective, the Fund invests
primarily in equity securities of U.S. companies that the investment manager
believes offer the best opportunities for capital appreciation at any given
time. The investment manager pursues a flexible investment strategy in the
selection of securities, not limited to any particular investment sector,
industry or company size; and it may, depending upon market circumstances,
emphasize the securities of small, medium or large-sized companies from time to
time. The Fund may invest a significant portion of its assets in initial public
offerings ("IPOs"), which are typically securities of small, unseasoned issuers.
In addition, since the Fund is a non-diversified investment company, when
attractive investments are identified, the investment manager may establish
relatively large individual positions, sometimes representing more than 5% of
total assets. See "Special Risk Factors--Non-Diversified" below. Therefore, the
Fund has broader latitude in its selection of securities than a typical equity
mutual fund. There is no assurance that the management strategy for the Fund
will be successful or that the Fund will achieve its objective.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies whose stocks
are selling at reasonable prices. Growth stocks are stocks of companies whose
earnings per share are expected by the investment manager to grow faster than
the market average. Growth stocks tend to trade at higher price to earnings
(P/E) ratios than the general market, but the investment manager believes that
the potential of such stocks for above average earnings more than justifies
their price. The investment manager relies heavily upon the fundamental analysis
and research of its large research staff, and will generally seek to invest in
growth companies whose value may not be fully recognized by the market at large.
Such companies may be:
- - Expected to achieve accelerating earnings growth, perhaps due to strong demand
for their products or services;
- - Undervalued, based upon price/earnings ratios, price/book value ratios and
other measures;
- - Undergoing financial restructuring;
- - Involved in takeover or arbitrage situations;
- - Expected to benefit from evolving market cycles or changing economic
conditions; or
- - Representing special situations, such as changes in management or favorable
regulatory developments.
Because of the flexible nature of the Fund's investment policies, the Fund may
have a higher portfolio turnover than a typical equity mutual fund. See
"Additional Investment Information" below. To some extent, the Fund may trade in
securities for the short term. In addition, the investment manager may use
market volatility in an attempt to capitalize on apparently unwarranted price
fluctuations, both to purchase or increase undervalued positions and to sell or
reduce overvalued holdings. For example, during market declines, the Fund may
add to positions in favored securities, while becoming more aggressive as it
gradually reduces the number of companies represented in its portfolio.
Conversely, in rising markets, the Fund may reduce or eliminate fully valued
positions, while becoming more conservative as it gradually increases the number
of companies in its portfolio.
Although the Fund will not invest 25% or more of its total assets in any one
industry, it may invest, from time to time, invest 25% or more of its total
assets in one or more market sectors. A market sector may be made up of
companies in a number of related industries, such as the technology sector. If
the Fund concentrates its investments in a market sector, financial, economic,
business and other developments affecting issuers in that sector may have a
greater affect on the Fund than if it had not concentrated its assets in that
sector.
13
<PAGE> 20
Under normal conditions, the Fund will invest at least 65%, and may invest up to
100%, of its total assets in equity securities. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investment and warrants and rights exercisable for
equity securities.
The Fund may also purchase and write options, engage in financial futures
transactions, purchase foreign securities and engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below. The
Fund may engage in short sales against-the-box, although it is the Fund's
current intention that no more than 5% of its net assets will be at risk. From
time to time, all or a significant portion of the Fund's assets may be held
temporarily in cash or defensive type securities, such as high-grade debt
securities, securities of the U.S. Government or its agencies and high quality
money market instruments, including repurchase agreements.
BLUE CHIP FUND. The Blue Chip Fund seeks growth of capital and of income. In
seeking to achieve its objective, the Fund will invest primarily in common
stocks of well capitalized, established companies that the Fund's investment
manager believes to have the potential for growth of capital, earnings and
dividends. Under normal market conditions, the Fund will, as a fundamental
policy, invest at least 65%, and may invest up to 100%, of its total assets in
the common stocks of companies with a market capitalization of at least $1
billion at the time of investment.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known, high quality companies. Companies of this general type are
often referred to as "Blue Chip" companies. "Blue Chip" companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. "Blue Chip" companies are believed to generally exhibit
less investment risk and less price volatility than companies lacking these high
quality characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
high trading volume in those shares results in a relatively high degree of
liquidity for such investments. The characteristics of high quality and high
liquidity of "Blue Chip" investments should make the market for such stocks
attractive to investors both within and outside the United States. The Fund will
generally attempt to avoid speculative securities or those with significant
speculative characteristics.
Examples of "Blue Chip" companies currently eligible for investment by the Fund
include, but are not limited to, companies such as Pfizer Inc., Merck & Co.,
Inc., Hewlett-Packard Company, AT&T Company, General Reinsurance, J.P. Morgan &
Co., Union Pacific Corporation and PepsiCo. Inc. While the Fund's portfolio will
not be limited to the examples noted and need not contain any specific security,
companies of this general quality comprise a relatively small, select group. In
general, the Fund will seek to invest in those established, high quality
companies whose industries are experiencing favorable secular or cyclical
change. Thus, the Fund in seeking its objective will endeavor to select its
investments from among high quality companies operating in the more attractive
industries.
As indicated above, the Fund's investment portfolio will normally consist
primarily of common stocks. The Fund may invest to a more limited extent in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks, including warrants and rights, when they are
believed to offer opportunities for growth of capital and of income. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. The Fund may engage in short sales
against-the-box, although it is the Fund's current intention that no more than
5% of its net assets will be at risk. When, as a result of market conditions
affecting "Blue Chip" companies, a defensive position is deemed advisable to
help preserve capital, the Fund may temporarily invest without limit in
high-grade debt securities, securities of the U.S. Government and its agencies,
and high quality money market instruments, including repurchase agreements, or
retain cash.
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The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
There are risks inherent in the investment in any security, including shares of
the Fund. The investment manager attempts to reduce risk through diversification
of the Fund's portfolio and fundamental research; however, there is no guarantee
that such efforts will be successful. The investment manager believes that there
are opportunities for growth of capital and growth of dividends from investments
in "Blue Chip" companies over time. The Fund's shares are intended for long-term
investment.
GROWTH FUND. The Growth Fund seeks growth of capital through professional
management and diversification of investments in securities it believes to have
potential for capital appreciation. In seeking to obtain capital appreciation,
the Fund may trade in securities for the short-term. To this extent, the Fund
will be engaged in trading operations based on short-term market considerations
as distinct from long-term investment based upon fundamental valuation of
securities. However, the Fund will emphasize fundamental research in attempting
to identify under-valued situations that it hopes will appreciate over the
longer term. The Fund's investment policy may involve a somewhat greater risk
than is inherent in the ordinary investment security. Since any income received
from such securities will be entirely incidental, an investor should not
consider a purchase of Fund shares as equivalent to a complete investment
program.
In seeking to achieve its objective, it will be the Fund's policy to invest
primarily in securities that it believes offer the potential for increasing the
Fund's total asset value. While it is anticipated that most investments will be
in common stocks of companies with above-average growth prospects, investments
may also be made to a limited degree in other common stocks and in convertible
securities (including warrants), such as bonds and preferred stocks. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. There may also be times when a
significant portion of the Fund's assets may be held temporarily in cash or
defensive type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements, depending upon the investment manager's
analysis of business and economic conditions and the outlook for security
prices.
Some of the factors the Fund's management will consider in making its
investments are patterns of increasing growth in sales and earnings, the
development of new or improved products or services, favorable outlooks for
growth in the industry, the probability of increased operating efficiencies,
emphasis on research and development, cyclical conditions, or other signs that a
company is expected to show greater than average capital appreciation and
earnings growth.
QUANTITATIVE FUND. The Quantitative Fund seeks growth of capital and reduction
of risk through professional management of a diversified portfolio of equity
securities. In seeking to achieve the Fund's objectives, the investment manager
will emphasize the use of fundamental research and advanced quantitative
technology. There is no assurance that the management strategy for the Fund will
be successful or that the Fund will achieve its objectives.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies, whose
stocks are selling at reasonable prices based upon their earnings potential and
whose earnings are growing faster than the market average. Those stocks that are
believed by the investment manager to have superior price appreciation potential
are considered as eligible for investment by the Fund. Thus, a list of eligible
investments is developed by the investment manager through a regimented review
process that applies the results of research generated by the investment
manager's analytical staff to well defined quantitative factors (e.g., return on
equity, earnings per share growth) and qualitative factors (e.g., industry
growth, market share). As described below, the Fund's portfolio is structured by
the investment manager from eligible investments by using advanced quantitative
technology with a view to reducing the
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<PAGE> 22
degree by which the volatility of the portfolio differs from the volatility of
the market for growth stocks generally.
The investment manager believes that there are identifiable macro-economic
factors that are major contributors to the volatility of the stock market.
Examples of these factors include: economic growth, the direction of long-term
interest rates and the credit spread, which is the spread between Treasury and
corporate fixed income securities. In selecting among the growth stocks
identified as being eligible for inclusion in the Fund's portfolio, the
investment manager applies advanced quantitative techniques to help structure
the portfolio so that normally it is neutrally weighted to these macro-economic
factors. These techniques involve the use of computer modeling to help select a
portfolio of securities believed to be attractive while simultaneously
maintaining a neutral macroeconomic posture. Neutral weighting means that the
exposure of the Fund's portfolio to the effect of these macro-economic factors
is, in the view of the investment manager, generally the same as the exposure of
the market for growth stocks as a whole. The purpose of this process is to
reduce the degree by which the volatility of the portfolio differs from the
volatility of the market for growth stocks and to increase the importance of
fundamental research and stock selection in the management process.
Depending upon economic and market conditions, the investment manager may at
times under- or overweight the portfolio with respect to certain macro-economic
factors. In those circumstances, the return potential as well as the risk
profile of the Fund's portfolio may be increased relative to the market for
growth stocks generally. However, a primary goal of portfolio structuring for
the Fund is to reduce those risks and the investment manager would normally not
be expected to so weight the portfolio.
Under normal conditions, the Fund will invest at least 65%, and may invest up to
100%, of its total assets in equity securities. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investment and warrants and rights exercisable for
equity securities. Normally, the Fund's primary investments will be common
stocks of large, well capitalized companies. The Fund currently does not intend
to invest more than 5% of its net assets in debt securities (including
convertible debt securities) during the current year (except for defensive
investments described below).
The Fund may also purchase and write options, engage in financial futures
transactions, purchase foreign securities and engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below. From
time to time, all or a significant portion of the Fund's assets may be held
temporarily in cash or defensive type securities, such as high-grade debt
securities, securities of the U.S. Government or its agencies and high quality
money market instruments, including repurchase agreements.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
SMALL CAP FUND. The Small Cap Fund seeks maximum appreciation of investors'
capital. Current income will not be a significant factor. The Fund is designed
primarily for investors with substantial resources and the investment experience
to consider their shares as a long-term investment involving financial risk
commensurate with potential substantial gains.
The Fund seeks attractive areas for investment opportunity arising from such
factors as technological advances, new marketing methods, and changes in the
economy and population. Currently, the investment manager believes that such
investment opportunities may be found among the following: (a) companies engaged
in high technology fields such as electronics, medical technology, computer
software and specialty retailing; (b) companies having a significantly improved
earnings outlook as the result of a changed economic environment, acquisitions,
mergers, new management, changed corporate strategy or product innovation; (c)
companies supplying new or rapidly growing services to consumers and businesses
in such fields as
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<PAGE> 23
automation, data processing, communications, marketing and finance; and (d)
companies having innovative concepts or ideas.
As a non-fundamental policy, at least 65% of the Fund's total assets normally
will be invested in the equity securities of smaller companies, i.e., those
having a market capitalization of $1 billion or less at the time of investment,
many of which would be in the early stages of their life cycle. The investment
manager currently believes that investment in such companies may offer greater
opportunities for growth of capital than larger, more established companies, but
also involves certain special risks. Smaller companies often have limited
product lines, markets, or financial resources, and they may be dependent upon
one or a few key people for management. The securities of such companies
generally are subject to more abrupt or erratic market movements and may be less
liquid than securities of larger, more established companies or the market
averages in general.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed by the investment manager to
offer opportunities for capital growth. The Fund may also purchase options,
engage in financial futures transactions, purchase foreign securities, engage in
related foreign currency transactions and lend its portfolio securities. See
"Special Risk Factors--Foreign Securities" and "Additional Investment
Information" below. When a defensive position is deemed advisable, it may,
without limit, invest in high-grade senior securities and securities of the U.S.
Government and its instrumentalities or retain cash or cash equivalents,
including repurchase agreements.
In the selection of investments, long-term capital appreciation will take
precedence over short range market fluctuations. The Fund does not intend to
engage actively in trading for short-term profits, although it may occasionally
make investments for short-term capital appreciation when such action is
believed to be desirable and consistent with sound investment procedure.
Generally, the Fund will make long-term rather than short-term investments.
Nevertheless, it may dispose of such investments at any time it may be deemed
advisable because of a subsequent change in the circumstances of a particular
company or industry or in general market or economic conditions. For example, a
security initially purchased for long-term growth potential may be sold at any
time when it is determined that future growth may not be at an acceptable rate
or that there is a risk of substantial decline in market price. The rate of
portfolio turnover is not a limiting factor when changes in investments are
deemed appropriate. In addition, market conditions, cash requirements for
redemption and repurchase of Fund shares or other factors could affect the
portfolio turnover rate.
Since many of the securities in the Fund's portfolio may be considered
speculative in nature by traditional investment standards, substantially greater
than average market volatility and investment risk may be involved. There can be
no assurance that the Fund's shareholders will be protected from the risk of
loss inherent in security ownership.
TECHNOLOGY FUND. The Technology Fund seeks growth of capital. In seeking to
achieve its objective, the Fund will invest primarily in securities of companies
which the investment manager expects to benefit from technological advances and
improvements ("technology companies") with an emphasis on the securities of
companies that the investment manager believes have potential for long-term
capital growth. Receipt of income from such securities will be entirely
incidental. Technology companies include those whose processes, products or
services, in the judgment of the investment manager, are or may be expected to
be significantly benefited by scientific developments and the application of
technical advances in industry, manufacturing and commerce resulting from
improving technology in such fields as, for example, aerospace, chemistry,
electronics, genetic engineering, geology, information sciences (including
computers and computer software), metallurgy, medicine (including pharmacology,
biotechnology and biophysics) and oceanography. This investment policy permits
the investment manager to seek stocks having superior growth potential in
virtually any industry in which they may be found. The above objective and
policies may not be changed without shareholder approval.
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<PAGE> 24
The investment manager currently believes that investments in smaller emerging
growth technology companies may offer greater opportunities for growth of
capital than investments in larger, more established technology companies.
However, such investments also involve certain special risks. Smaller companies
often have limited product lines, markets, or financial resources; and they may
be dependent upon one or a few persons for management. The securities of such
companies generally are subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. Thus, investment by the Fund in smaller emerging growth technology
companies may expose investors to greater than average financial and market
risk. There is no assurance that the Fund's objective will be achieved.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed to offer opportunities for
capital growth. The Fund may also purchase and write options, engage in
financial futures transactions, purchase foreign securities, engage in related
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign Securities" and "Additional Investment Information" below.
When a defensive position is deemed advisable, the Fund may, without limit,
invest in high-grade senior securities and securities of the U.S. Government and
its instrumentalities or retain cash or cash equivalents, such as high quality
money market instruments, including repurchase agreements. The Fund's shares are
intended for long-term investment.
The Fund may invest up to 10% of its total assets in entities, such as limited
partnerships or trusts, that invest primarily in the securities of technology
companies. The investment manager believes that the flexibility to make limited
indirect investment in technology companies through entities such as limited
partnerships and trusts will provide the Fund with increased opportunities for
growth of capital. However, there is no assurance that such investments will be
profitable. Entities that invest in the securities of technology companies
normally have management fees and other costs that are in addition to those of
the Fund. Such fees and costs will reduce any returns directly attributable to
the underlying technology companies. The effect of these fees will be considered
by the investment manager in connection with any decision to invest in such
entities. Securities issued by these entities are normally privately placed,
restricted and illiquid.
The Fund purchases securities for long-term investment, but it is the investment
manager's belief that a sound investment program must be flexible in order to
meet changing conditions, and changes in holdings will be made whenever deemed
advisable.
TOTAL RETURN FUND. The Total Return Fund seeks the highest total return, a
combination of income and capital appreciation, consistent with reasonable risk.
The Fund will emphasize liberal current income in seeking its objective. The
Fund's investments will normally consist of domestic and foreign fixed income
and equity securities. Fixed income securities will include bonds and other debt
securities (such as U.S. and foreign Government securities and investment grade
and high yield corporate obligations) and preferred stocks, some of which may
have a call on common stocks through attached warrants or a conversion
privilege. The percentage of assets invested in specific categories of fixed
income and equity securities will vary from time to time depending upon the
judgment of management as to general market and economic conditions, trends in
yields and interest rates and changes in fiscal or monetary policies. The Fund
may also purchase options, engage in financial futures transactions, engage in
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign Securities" and "Additional Investment Information" below.
As noted above, the Fund may invest in high yield fixed income securities which
are in the lower rating categories and those which are unrated. Thus, the Fund
could invest in some instruments considered by the rating services to have
predominantly speculative characteristics. Investments in lower rated or
non-rated securities, while generally providing greater income and opportunity
for gain than investments in higher rated securities, entail greater risk of
loss of income and principal. Currently, it is anticipated that the Fund would
invest less than 35% of its total assets in high yield bonds. For a discussion
of lower rated and non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below.
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<PAGE> 25
The Fund does not make investments for short-term profits, but it is not
restricted in policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
and market prices may dictate and as its investment policy may require.
VALUE+GROWTH FUND. The Value+Growth Fund seeks growth of capital through
professional management of a portfolio of growth and value stocks. These stocks
include stocks of large established companies, as well as stocks of small
companies. A secondary objective is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only value stocks.
Growth stocks are stocks of companies whose earnings per share are expected by
the investment manager to grow faster than the market average. Growth stocks
tend to trade at higher price to earnings (P/E) ratios than the general market,
but the investment manager believes that the potential of such stocks for above
average earnings more than justifies their price. Value stocks are considered
"bargain stocks" because they are perceived as undervalued, i.e., attractively
priced in relation to their earnings potential (low P/E ratios). Value stocks
typically have dividend yields higher than the average of the companies
represented in the Standard & Poor's 500 Stock Index.
The allocation between growth and value stocks in the Fund's portfolio will be
made by the investment manager's Quantitative Research Department with the help
of a proprietary model that evaluates macro-economic factors such as the
strength of the economy, interest rates and special factors concerning growth
and value stocks. Historically, the performance of growth and value stocks has
tended to be counter-cyclical, i.e., when one was in favor, the other was out of
favor relative to the equity market in general. Through the allocation process,
the investment manager will seek to weight the portfolio more heavily in the
type of stocks that are believed to present greater return opportunities at the
time. The neutral allocation between growth and value stocks would be 50%/50%.
Although allocations in favor of growth or value normally would not be expected
to exceed 60%, the allocation to growth or value may be up to 75% at any time.
Allocation decisions are normally based upon long-term considerations and
changes would normally be expected to be gradual. There is no assurance that the
allocation process will improve investment results.
ZKI manages the growth portion of the Fund. In managing the growth portion of
the portfolio, ZKI emphasizes stock selection and fundamental research in
seeking to enhance long-term performance potential. ZKI considers a number of
quantitative and qualitative factors in considering whether to invest in a stock
including high return on equity and earnings growth rate, low level of debt,
strong balance sheet, good management and industry leadership. DVA manages the
value portion of the Fund. DVA seeks stocks it believes to be undervalued. The
principal factor considered is P/E ratios. Typically stocks of both types will
have a market capitalization in excess of $1 billion. In selecting among stocks
with low P/E ratios, DVA considers other factors such as financial strength,
book to market value, earnings and dividend growth rates, return on equity and
earnings estimates.
Although it is anticipated that the Fund will invest primarily in common stocks
of domestic companies, the Fund may also purchase convertible securities, such
as bonds and preferred stocks (including warrants and rights). The Fund may also
purchase options, engage in financial futures transactions, purchase foreign
securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors-- Foreign Securities" and
"Additional Investment Information" below. From time to time, a significant
portion of the Fund's assets may be held temporarily in cash or defensive type
securities, such as high-grade debt securities, securities of the U.S.
Government or its agencies and high quality money market instruments, including
repurchase agreements.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
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SPECIAL RISK FACTORS--NON-DIVERSIFIED. The Investment Company Act of 1940 (the
"1940 Act") classifies investment companies as either "diversified" or
"non-diversified." All the Funds, except the Aggressive Growth Fund, are
diversified funds under the 1940 Act. As a non-diversified fund, the Aggressive
Growth Fund may invest a greater proportion of its assets in the obligations of
a small number of issuers, and may be subject to greater risk and substantial
losses as a result of changes in the financial condition or the market's
assessment of the issuers. While not limited by the 1940 Act as to the
proportion of its assets that it may invest in obligations of a single issuer,
the Aggressive Growth Fund will comply with the diversification requirements
imposed by the Internal Revenue Code for qualification as a regulated investment
company. Accordingly, the Aggressive Growth Fund will not, as a fundamental
policy: (i) purchase more than 10% of any class of voting securities of any
issuer; (ii) with respect to 50% of its total assets, purchase securities of any
issuer (other than U.S. Government Securities) if, as a result, more than 5% of
the total value of the Fund's assets would be invested in securities of that
issuer; and (iii) invest more than 25% of its total assets in a single issuer
(other than U.S. Government Securities). After the Aggressive Growth Fund's
initial start up period of six-months, the Fund does not currently expect that
it would invest more than 10% of its total assets in a single issuer (other than
U.S. Government Securities).
SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Funds invest primarily in
securities that are publicly traded in the United States; but, they have
discretion to invest a portion of their assets in foreign securities that are
traded principally in securities markets outside the United States. The Funds
currently limit investment in foreign securities not publicly traded in the
United States to 25% of their total assets. The Funds may also invest without
limit in U.S. Dollar denominated American Depository Receipts ("ADRs"), which
are bought and sold in the United States and are not subject to the preceding
limitation. In connection with their foreign securities investments, the Funds
may, to a limited extent, engage in foreign currency exchange, options and
futures transactions as a hedge and not for speculation. Additional information
concerning foreign securities and related techniques is contained under
"Additional Investment Information" below and "Investment Policies and
Techniques" in the Statement of Additional Information.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
EMERGING MARKETS. While each Fund's investments in foreign securities will be
principally in developed countries, a Fund may make investments in developing or
"emerging" countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and
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<PAGE> 27
most Western European countries. Currently, investing in many emerging markets
may not be desirable or feasible because of the lack of adequate custody
arrangements for a Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As opportunities to invest in securities in
emerging markets develop, a Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing or
emerging market countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of return to
investors. The investment manager believes that these characteristics can be
expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Certain emerging
markets may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose the Fund to the risk of losses resulting from a Fund's
inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. A Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
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FIXED INCOME. Since most foreign fixed income securities are not rated, a Fund
(principally the Total Return Fund) will invest in foreign fixed income
securities based on the investment manager's analysis without relying on
published ratings. Since such investments will be based upon the investment
manager's analysis rather than upon published ratings, achievement of a Fund's
goals may depend more upon the abilities of the investment manager than would
otherwise be the case.
The value of the foreign fixed income securities held by a Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which a Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Fund's investments
in foreign fixed income securities, and the extent to which a Fund hedges its
interest rate, credit and currency exchange rate risks. Many of the foreign
fixed income obligations in which a Fund will invest will have long maturities.
A longer average maturity generally is associated with a higher level of
volatility in the market value of such securities in response to changes in
market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to other debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Fund. A significant
portion of the sovereign debt in which a Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatization will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
22
<PAGE> 29
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Funds may also
invest in European Depository Receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily denominated
in the currency of the underlying security.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the Total
Return Fund may invest a portion of its assets in fixed income securities that
are in the lower rating categories (below the fourth category) of recognized
rating agencies or are non-rated. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories. Lower rated and non-rated securities, which are
commonly referred to as "junk bonds," have widely varying characteristics and
quality. The market values of such securities tend to reflect individual
corporate developments to a greater extent than do those of higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also are more sensitive to economic
conditions than are higher rated securities. Adverse publicity and investor
perceptions regarding lower rated bonds, whether or not based upon fundamental
analysis, may depress the prices for such securities. These and other factors
adversely affecting the market value of high yield securities will adversely
affect the Fund's net asset value. Although some risk is inherent in all
securities ownership, holders of fixed income securities have a claim on the
assets of the issuer prior to the holders of common stock. Therefore, an
investment in fixed income securities generally entails less risk than an
investment in common stock of the same issuer. The Fund may have difficulty
disposing of certain high yield securities because they may have a thin trading
market. The lack of a liquid secondary market may have an adverse effect on
market price and the Fund's ability to dispose of particular issues and may also
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing these assets. Additional information concerning high yield
securities appears under "Investment Policies and Techniques--Other
Considerations--High Yield (High Risk) Bonds" and "Appendix--Ratings of Fixed
Income Investments" in the Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates for the Funds
(other than the Aggressive Growth Fund) are listed under "Financial Highlights."
It is anticipated that, under normal circumstances, the portfolio turnover rate
for the Aggressive Growth Fund will be in excess of 100%. Higher portfolio
turnover involves correspondingly greater brokerage commissions or other
transaction costs. Higher portfolio turnover may result in the realization of
greater net short-term capital gains. In order to continue to qualify as a
regulated
23
<PAGE> 30
investment company for federal income tax purposes, less than 30% of the annual
gross income of a Fund must be derived from the sale or other disposition of
securities and certain other investments held by a Fund for less than three
months. See "Dividends and Taxes" in the Statement of Additional Information.
The Aggressive Growth and Blue Chip Funds each may not borrow money except as a
temporary measure for extraordinary or emergency purposes and not for leverage
purposes, and then only in an amount up to one-third of the value of its total
assets in order to meet redemption requests without immediately selling any
portfolio securities or other assets. (If, for any reason, the current value of
the Fund's total assets falls below an amount equal to three times the amount of
its indebtedness from money borrowed, the Fund will, within three days (not
including Sundays and holidays), reduce its indebtedness to the extent
necessary.) The Blue Chip Fund may pledge up to 15% of its total assets to
secure any such borrowings. The Growth, Quantitative, Small Cap, Technology,
Total Return and Value+Growth Funds each may not borrow money except for
temporary or emergency purposes (but not for the purchase of investments) and
then only in an amount not to exceed 5% of its net assets, and may not pledge
their assets in an amount exceeding the amount of the borrowings secured by such
pledge. The Aggressive Growth Fund may not pledge its assets except to secure
permitted borrowings.
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities. If a Fund holds a material percentage of its assets in illiquid
securities, there may be a question concerning the ability of the Fund to make
payment within seven days of the date its shares are tendered for redemption.
SEC guidelines provide that the usual limit on aggregate holdings by an open-end
investment company of illiquid assets is 15% of its net assets. See "Investment
Policies and Techniques--Over-the-Counter Options" in the Statement of
Additional Information for a description of the extent to which over-the-counter
traded options are in effect considered as illiquid for purposes of the limit on
illiquid securities for the Funds. Each Fund may invest in securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933. This rule
permits otherwise restricted securities to be sold to certain institutional
buyers, such as the Portfolios. Such securities may be illiquid and subject to
the Fund's limitation on illiquid securities. A "Rule 144A" security may be
treated as liquid, however, if so determined pursuant to procedures adopted by
the Board of Trustees. Investing in Rule 144A securities could have the effect
of increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
securities.
Each Fund has adopted certain fundamental investment restrictions, which are
presented in the Statement of Additional Information and which, together with
the investment objective and policies of a Fund (other than policies that are
not fundamental), cannot be changed without approval by holders of a majority of
its outstanding voting shares. As defined in 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 a Fund. Policies of the Aggressive
Growth, Blue Chip, Quantitative and Value+Growth Funds that are neither
designated as fundamental nor incorporated into any of the fundamental
investment restrictions referred to in the first sentence of this paragraph are
not fundamental and may be changed by the Board of Trustees of the Fund without
shareholder approval.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Funds may each deal in options
on securities, securities indexes and foreign currencies, which options may be
listed for trading on a national securities exchange or traded over-the-counter.
The Aggressive Growth, Quantitative and Technology Funds may write (sell)
covered call and secured put options on up to 25% of net assets and each Fund
may purchase put and call options provided that no more than 5% of its net
assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price during or at the end of the option period. The
writer of a covered call owns securities or other assets that are
24
<PAGE> 31
acceptable for escrow and the writer of a secured put invests an amount not less
than the exercise price in eligible securities or other assets to the extent
that it is obligated as a writer. If a call written by a Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying security or other asset over the exercise price plus the premium
received. In writing puts, there is a risk that a Fund may be required to take
delivery of the underlying security or other asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
a Fund may experience material losses. However, in writing options (for the
Aggressive Growth, Quantitative and Technology Funds) the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities or other assets, and a wider range of expiration dates and exercise
prices, than for exchange traded options.
Each Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. A Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with their foreign securities investments, the Funds may also engage
in foreign currency financial futures transactions. A Fund will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.
The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, when the near-term
market view is bearish but the portfolio composition is judged satisfactory for
the longer term, exposure to temporary declines in the market may be reduced by
entering into futures contracts to sell securities or the cash value of a
securities index. Conversely, where the near-term view is bullish, but the Fund
is believed to be well positioned for the longer term with a high cash position,
the Fund can hedge against market increases by entering into futures contracts
to buy securities or the cash value of a securities index. In either case, the
use of futures contracts would tend to reduce portfolio turnover and facilitate
the Fund's pursuit of its investment objective.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures market could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators,
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager still may not result in a successful hedging
transaction. If any of these events should occur, a Fund could lose money on the
financial futures contracts and also on the value of its portfolio assets. The
costs incurred in connection with futures transactions could reduce a Fund's
return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
25
<PAGE> 32
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
FOREIGN CURRENCY TRANSACTIONS. The Funds may invest a portion of their assets in
securities denominated in foreign currencies. The Funds may engage in foreign
currency transactions in connection with their investments in foreign securities
but will not speculate in foreign currency exchange.
The value of the foreign securities investments of a Fund measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. 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 forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains that might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
A Fund will not speculate in foreign currency exchange. A Fund will not enter
into such forward contracts or maintain a net exposure in such contracts where
the Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's securities or other assets denominated in that
currency. The Funds do not intend to enter into such forward contracts if they
would have more than 15% of the value of their total assets committed to forward
contracts for the purchase of a foreign currency. A Fund segregates cash or
liquid securities to the extent required by applicable regulation in connection
with forward foreign currency exchange contracts entered into for the purchase
of a foreign currency. A Fund generally does not enter into a forward contract
with a term longer than one year.
DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, each Fund may invest in a broad
array of financial instruments and securities in which the value of the
26
<PAGE> 33
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position
indirectly (often because it is more efficient or less costly than direct
investment). There is no guarantee that these results can be achieved through
the use of derivatives. The types of derivatives used by each Fund and the
techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.
SPECIAL RISK FACTORS--OPTIONS, FUTURES, FOREIGN CURRENCIES AND OTHER
DERIVATIVES. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures contracts or other derivatives and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivative intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivatives contracts in order to continue
to qualify for beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code; and (f) the possible non-performance
of the counter-party to the derivative contract.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Funds may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or U.S. Government securities) equal to
no less than the market value, determined daily, of the securities loaned. The
Funds will receive amounts equal to dividends or interest on the securities
loaned. The Funds will also earn income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term money market
instruments. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the investment manager to be of good standing, and when the investment
manager believes the potential earnings justify the attendant risk. Management
will limit such lending to not more than one-third of the value of a Fund's
total assets.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 S. Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. Dreman
Value Advisors, Inc. ("DVA") is the sub-adviser for the Value+Growth Fund. See
"Value+Growth Fund" below for information about DVA. ZKI is one of the largest
investment managers in the country and has been engaged in the management of
investment funds for more than forty-eight years. ZKI and its affiliates provide
investment advice and manage investment portfolios for the Kemper Funds,
affiliated insurance companies and other corporate, pension, profit-sharing and
individual accounts representing approximately $78 billion under management. ZKI
acts as investment manager for 31 open-end and seven closed-end investment
companies, with 78 separate investment portfolios, representing more than 3
million shareholder accounts. ZKI is an indirect subsidiary of Zurich Insurance
Company, an internationally recognized company providing services in life and
non-life insurance, reinsurance and asset management.
Responsibility for overall management of each Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by ZKI.
The investment management agreements provide that ZKI shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities. ZKI will from time to time use the services of Zurich Investment
Management Limited ("ZIML"), 1 Fleet Place, London EC4M 7RQ, a wholly-owned
subsidiary of ZKI, with respect to foreign securities investments of the Funds
including analysis, research, execution and trading services.
27
<PAGE> 34
Tracy McCormick Chester has been the portfolio manager of the Blue Chip Fund
since September, 1994 when she joined ZKI. She is a vice president of the Blue
Chip Fund and senior vice president of ZKI. Prior to coming to ZKI, she was a
senior vice president and portfolio manager of an investment management company;
and prior thereto, she managed private accounts. She received a B.A. and an
M.B.A. in Finance from Michigan State University, East Lansing, Michigan.
Patrick S. Adams has been the portfolio manager of the Growth Fund since June,
1996 and the portfolio manager of the Aggressive Growth Fund since it commenced
operations in , 1996. Mr. Adams joined ZKI in June, 1996 and is a
Senior Vice President of ZKI. Immediately prior to joining ZKI, he served as a
portfolio manager with an unaffiliated investment management firm from March of
1993 and, prior thereto, he served as a portfolio manager with another
unaffiliated investment management firm. Mr. Adams received an M.B.A. from
Xavier University, Cincinnati, Ohio and a B.S. in Business Administration from
Ohio State University, Columbus, Ohio.
Frank D. Korth is the portfolio manager of the Technology Fund and has served as
such, or as co-manager, since January, 1994. Mr. Korth joined ZKI in March, 1990
and is currently a senior vice president of ZKI and a vice president of the
Fund. Prior to coming to ZKI, Mr. Korth was president and portfolio manager of a
mutual fund investing primarily in equity securities. He received a B.A. in Math
from Mankato State University, Mankato, Minnesota and an M.B.A. in Finance from
Bernard Baruch College, New York, New York. Mr. Korth is a Chartered Financial
Analyst.
Gary A. Langbaum has been the portfolio manager of the Total Return Fund since
February, 1995 and the portfolio manager of the Small Cap Fund since January,
1996. He is assisted by investment personnel who specialize in certain areas.
Mr. Langbaum joined ZKI in 1988 and is an executive vice president of ZKI. He
received a B.A. in Finance from the University of Maryland, College Park,
Maryland.
Daniel J. Bukowski has been the portfolio manager of the Quantitative Fund since
it commenced operations in February, 1996 and has been a portfolio manager or
co-manager of the Value+Growth Fund since October, 1995. Mr. Bukowski joined ZKI
in 1989 and is a senior vice president and Director of Quantitative Research of
ZKI and a vice president of the Quantitative Fund and the Value+Growth Fund. Mr.
Bukowski received a B.A. in Statistics and an M.B.A. in Finance from the
University of Chicago, Chicago, Illinois.
The Funds (other than the Small Cap Fund) pay ZKI investment management fees,
payable monthly, at the annual rates shown below. The Small Cap Fund pays a base
annual management fee, payable monthly, at the rate of .65% of the average daily
net assets of the Fund. This base fee is subject to upward or downward
adjustment between .35% and .95% on the basis of the investment performance of
the Class A shares of the Fund compared with the performance of the Standard &
Poor's 500 Stock Index as described in the Statement of Additional Information.
<TABLE>
<CAPTION>
BLUE CHIP,
GROWTH,
QUANTITATIVE,
TECHNOLOGY
AND TOTAL VALUE+ AGGRESSIVE
AVERAGE DAILY NET ASSETS RETURN FUNDS GROWTH FUND GROWTH FUND
- -------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
$0 - $250 million....................................... .58% .72% %
$250 million - $1 billion............................... .55 .69
$1 billion - $2.5 billion............................... .53 .66
$2.5 billion - $5 billion............................... .51 .64
$5 billion - $7.5 billion............................... .48 .60
$7.5 billion - $10 billion.............................. .46 .58
$10 billion - $12.5 billion............................. .44 .56
Over $12.5 billion...................................... .42 .54
</TABLE>
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<PAGE> 35
VALUE+GROWTH FUND. As mentioned above, DVA is the sub-adviser for the
Value+Growth Fund. Under the terms of the Sub-Advisory Agreement, DVA will
manage the value portion of the Fund and will provide such other investment
advice, research and assistance as ZKI may, from time to time, reasonably
request. DVA, which was formed in October, 1994, has served as investment
manager for mutual funds and certain institutional accounts since August, 1995
when it acquired substantially all the assets of Dreman Value Management, L.P.
DVA is a wholly-owned subsidiary of ZKI and is located at 10 Exchange Place,
Suite 2050, Jersey City, New Jersey 07302. ZKI pays DVA for its services a
sub-advisory fee, payable monthly at the annual rate of .25% of average daily
net assets of the Fund.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 222 S. Riverside Plaza, Chicago, Illinois, 60606, an affiliate of ZKI,
is the principal underwriter and distributor of each Fund's shares and acts as
agent of each Fund in the sale of its shares. KDI bears all its expenses of
providing services pursuant to the distribution agreement, including the payment
of any commissions. KDI provides for the preparation of advertising or sales
literature and bears the cost of printing and mailing prospectuses to persons
other than shareholders. KDI bears the cost of qualifying and maintaining the
qualification of Fund shares for sale under the securities laws of the various
states and each Fund bears the expense of registering its shares with the
Securities and Exchange Commission. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
CLASS A SHARES. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class B Shares." KDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. KDI currently advances to firms
the first year distribution fee at a rate of .75% of the purchase price of Class
C shares. For periods after the first year, KDI currently pays firms for sales
of Class C shares a distribution fee, payable quarterly, at an annual rate of
.75% of net assets attributable to Class C shares maintained and serviced by the
firm and the fee continues until terminated by KDI or a Fund. KDI also receives
any contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charges--Class C Shares".
RULE 12B-1 PLAN. Since each distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares. The table below shows amounts paid in connection with
29
<PAGE> 36
each Fund's Rule 12b-1 Plan during its 1996 fiscal year (except the Aggressive
Growth Fund which will commence operations , 1996).
<TABLE>
<CAPTION>
DISTRIBUTION FEES
DISTRIBUTION EXPENSES PAID CONTINGENT DEFERRED
INCURRED BY BY FUND TO SALES CHARGES PAID
UNDERWRITER UNDERWRITER TO UNDERWRITER
--------------------- -------------------- -------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B
- -------------------------------------- ---------- ------- --------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Blue Chip............................. $
Growth................................ $
Quantitative*......................... $
Small Cap............................. $
Technology............................ $
Total Return.......................... $
Value+Growth.......................... $
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of a Fund to make payments to KDI pursuant to the Plan will cease
and the Fund will not be required to make any payments past the termination
date. Thus, there is no legal obligation for the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under a Plan may or may
not be sufficient to reimburse KDI for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding each Fund and its special
features, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI bears all its expenses
of providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreements,
each Fund pays KDI a fee, payable monthly, at the annual rate of up to .25% of
average daily net assets of Class A, B and C shares of such Fund. KDI then pays
each firm a service fee at an annual rate of up to .25% of net assets of Class
A, B and C shares maintained and serviced by the firm. Firms to which service
fees may be paid include broker-dealers affiliated with KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the accounts in the month following the month of purchase
and the fee continues until terminated by KDI or the Fund. The fees are
calculated monthly and paid quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm. After the first year, a firm becomes eligible for the quarterly service
fee and the fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each 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 a Fund's records and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each Fund while this procedure is
in effect will depend upon the proportion of
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<PAGE> 37
Fund assets that is in accounts for which there is a firm of record. In
addition, KDI may, from time to time, from its own resources pay certain firms
additional amounts for ongoing administrative services and assistance provided
to their customer and clients who are shareholders of the Funds.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of each Fund maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of each Fund held outside the United States. IFTC also is
the Funds' transfer agent and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, an affiliate of ZKI, serves as
"Shareholder Service Agent" of the Funds and, as such, performs all of IFTC's
duties as transfer agent and dividend-paying agent. For a description of
transfer agent and shareholder service agent fees payable to IFTC and the
Shareholder Service Agent, see "Investment Manager and Underwriter" in the
Statement of Additional Information.
PORTFOLIO TRANSACTIONS. ZKI places all orders for purchases and sales of a
Fund's securities (except that DVA places all orders for the value portion of
the Value+Growth Fund and ZIML places certain orders for purchases and sales of
a Fund's foreign securities and related transactions). Subject to seeking best
execution of orders, they may consider sales of shares of a Fund and other funds
managed by ZKI or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Growth, Quantitative, Small Cap,
Technology and Value+Growth Funds; semi-annually for the Blue Chip Fund; and
quarterly for the Total Return Fund. Each Fund distributes any net realized
short-term and long-term capital gains at least annually. The quarterly
distribution to shareholders of the Total Return Fund may include short-term
capital gains.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends and a minimum account value of $1,000 in the Kemper
Fund in which dividends are reinvested. 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 of a Fund in the
aggregate amount of $10 or less are
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<PAGE> 38
automatically reinvested in shares of the Fund unless the shareholder requests
that such policy not be applied to the shareholder's account.
TAXES. Each Fund intends to continue to qualify (or for the Aggressive Growth
Fund, that intends to qualify) as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code") and, if so qualified,
will not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders are
taxed at a maximum rate of 28%. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. A portion of the dividends paid by the Funds may qualify for the
dividends received deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over". The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes,
including, when appropriate, information regarding any foreign taxes and
credits, will be provided after the end of the calendar year. Shareholders are
encouraged to retain copies of their account confirmation statements or year-end
statements for tax reporting purposes. However, those who have incomplete
records may obtain historical account transaction information at a reasonable
fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of a Fund is determined separately for each class
by dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a Fund will generally be lower than that of the
Class A shares of the Fund because of the higher expenses borne by Class B and
Class C shares. Portfolio securities that are primarily traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are
32
<PAGE> 39
available. Fixed income securities are valued by using market quotations, or
independent pricing services that use prices provided by market makers or
estimates of market values obtained from yield data relating to instruments or
securities with similar characteristics. Equity options are valued at the last
sale price unless the bid price is higher or the asked price is lower, in which
event such bid or asked priced is used. Exchange traded fixed income options are
valued at the last sale price unless there is no sale price, in which event
current prices provided by market makers are used. Over-the-counter traded
options are valued based upon current prices provided by market makers.
Financial futures and options thereon are valued at the settlement price
established each day by the board of trade or exchange on which they are traded.
Other securities and assets are valued at fair value as determined in good faith
by the Board of Trustees. Because of the need to obtain prices as of the close
of trading on various exchanges throughout the world, the calculation of net
asset value of a Fund investing in foreign securities does not necessarily take
place contemporaneously with the determination of the prices of a Fund's foreign
securities, which may be made prior to the determination of net asset value. For
purposes of determining the Fund's net asset value of a Fund investing in
foreign securities, all assets and liabilities initially expressed in foreign
currency values will be converted into U.S. Dollar values at the mean between
the bid and offered quotations of such currencies against U.S. Dollars as last
quoted by a recognized dealer. If an event were to occur, after the value of a
security was so established but before the net asset value per share was
determined, which was likely to materially change the net asset value, then that
security would be valued using fair value determinations by the Board of
Trustees or its delegates. On each day the New York Stock Exchange (the
"Exchange") is open for trading, the net asset value is determined as of the
earlier of 3:00 p.m. Chicago time or the close of the Exchange.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial or a contingent deferred sales charge
but are subject to higher ongoing expenses than Class A shares, are subject to a
contingent deferred sales charge payable upon certain redemptions within the
first year following purchase, and do not convert into another class. When
placing purchase orders, investors must specify whether the order is for Class
A, Class B or Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
--------------------------------- ------------------------ ---------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
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<PAGE> 40
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer or use
the telephone exchange privilege if share certificates have been issued. A lost
or destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond worth 2% or more of the certificate value is normally
required).
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------------
ALLOWED
TO
DEALERS
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING ASSET OFFERING
AMOUNT OF PURCHASE PRICE VALUE* PRICE
------ ------ ------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75 % 6.10 % 5.20 %
$50,000 but less than $100,000........................ 4.50 4.71 4.00
$100,000 but less than $250,000....................... 3.50 3.63 3.00
$250,000 but less than $500,000....................... 2.60 2.67 2.25
$500,000 but less than $1 million..................... 2.00 2.04 1.75
$1 million and over................................... .00 ** .00 ** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which ZKI or an affiliate does not serve as investment manager
("non-Kemper Fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper Fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper Fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. KDI may in its discretion compensate firms for sales
of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased. The redemption of the shares of the
non-Kemper Fund is, for Federal income tax purposes, a sale upon which a gain or
loss may be realized.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A
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<PAGE> 41
Shares--Combined Purchases" totals at least $1,000,000 including purchases of
Class A shares pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features described under "Special Features"; or (b) a
participant-directed qualified retirement plan described in Code Section 401(a)
or a participant-directed non-qualified deferred compensation plan described in
Code Section 457 provided in either case that such plan has not less than 200
eligible employees (the "Large Order NAV Purchase Privilege"). Redemption within
two years of shares purchased under the Large Order NAV Purchase Privilege may
be subject to a contingent deferred sales charge. See "Redemption or Repurchase
of Shares--Contingent Deferred Sales Charge--Large Order NAV Purchase
Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in 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 is also
applicable.
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER
SHORT-TERM GLOBAL INCOME FUND, ET AL., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, KDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to .25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of a Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of
35
<PAGE> 42
KDF (or a Kemper Fund acquired by exchange of KDF shares) since that date, for
themselves or members of their families; and (d) any trust, pension,
profit-sharing or other benefit plan for only such persons. Class A shares may
be sold at net asset value in any amount to selected employees (including their
spouses and dependent children) of banks and other financial services firms that
provide administrative services related to order placement and payment to
facilitate transactions in shares of the Funds for their clients pursuant to an
agreement with KDI or one of its affiliates. Only those employees of such banks
and other firms who as part of their usual duties provide services related to
transactions in Fund shares may purchase Fund Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Everen Securities, Inc. In addition, unitholders
of unit investment trusts sponsored by Everen Securities, Inc. or its
predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the Investment Advisers Act of 1940
and other financial services firms that adhere to certain standards established
by KDI, including a requirement that such shares be sold for the benefit of
their clients participating in a "wrap account" or similar program under which
such clients pay a fee to the investment adviser or other firm. Such shares are
sold for investment purposes and on the condition that they will not be resold
except through redemption or repurchase by the Funds. The Funds may also issue
Class A shares at net asset value in connection with the acquisition of the
assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. Class B shareholders of the Funds who originally acquired their
shares as Initial Shares of Kemper Portfolios, formerly known as Kemper
Investment Portfolios ("KIP"), hold them subject to the same conversion period
schedule as that of their KIP Portfolio. Class B shares representing Initial
Shares of a former KIP Portfolio will automatically convert to Class A shares of
the applicable Fund six years after issuance of the Initial Shares for shares
issued on or after February 1, 1991 and seven years after issuance of the
Initial Shares for shares issued before February 1, 1991. The purpose of the
conversion feature is to relieve holders of Class B shares from the distribution
services fee when they have been outstanding long enough for KDI to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions
36
<PAGE> 43
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the 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 .75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of .75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
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.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Funds, or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). 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
37
<PAGE> 44
promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of 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.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet
38
<PAGE> 45
received good payment (i.e., purchases by check, Express-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by a Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), the redemption of Class B shares within six years
may be subject to a contingent deferred sales charge (see "Contingent Deferred
Sales Charge--Class B Shares" below), and the redemption of Class C shares
within the first year following purchase may be subject to a contingent deferred
sales charge (see "Contingent Deferred Sales Charge--Class C Shares" below).
Because of the high cost of maintaining small accounts, the Funds reserve the
right to redeem an account (and impose any applicable contingent deferred sales
charge) that falls below the minimum investment level, currently $1,000, as a
result of redemptions. Currently, Individual Retirement Accounts and employee
benefit plan accounts are not subject to this procedure. A shareholder will be
notified in writing and will be allowed 60 days to make additional purchases to
bring the account value up to the minimum investment level before a Fund redeems
the shareholder's account. The investment required to reach that level may be
made at net asset value (without any initial sales charge in the case of Class A
shares).
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Funds reserve the right to terminate or modify
this privilege at any time.
39
<PAGE> 46
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if ZKI deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Funds are not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Funds currently do not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Funds reserve the right to terminate or
modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested
40
<PAGE> 47
dividends on Class B shares. The charge is computed at the following rates
applied to the value of the shares redeemed excluding amounts not subject to the
charge.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
------------------------------------------------------------------------ ----------
<S> <C>
First................................................................... 4%
Second.................................................................. 3%
Third................................................................... 3%
Fourth.................................................................. 2%
Fifth................................................................... 2%
Sixth................................................................... 1%
</TABLE>
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios, hold them
subject to the same CDSC schedule that applied when those shares were purchased,
as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR OF ----------------------------------------------------------------------------------------
REDEMPTION SHARES PURCHASED ON OR AFTER
AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
PURCHASE MARCH 1, 1993 MARCH 1, 1993 FEBRUARY 1, 1991
------------------------ ----------------------------- ----------------------------- ------------------------
<S> <C> <C> <C>
First................... 4% 3% 5%
Second.................. 3% 3% 4%
Third................... 3% 2% 3%
Fourth.................. 2% 2% 2%
Fifth................... 2% 1% 2%
Sixth................... 1% 1% 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived: (a)
in the event of the total disability (as evidenced by a determination by the
federal Social Security
41
<PAGE> 48
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts) and (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation
is subject to the charge. The charge would be at the rate of 3% ($300) because
it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or
other Kemper Mutual Fund who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative-- Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in Class A shares, Class B
shares or Class C shares, as the case may be, of a Fund or of other Kemper
Mutual Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge. Also, a holder of
Class B shares who has redeemed shares may reinvest up to the full amount
redeemed, less any applicable contingent deferred sales charge that may have
been imposed upon the redemption of such shares, at net asset value in Class A
shares of a Fund or of the other Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features--Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of shares of a
Fund, the reinvestment in shares of a Fund may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
42
<PAGE> 49
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Fund, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value+Growth
Fund, Kemper-Dreman Fund, Inc., Kemper Quantitative Equity Fund, Kemper Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth
Fund ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Kemper Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Tax-Exempt New York Money Market Fund or Investors Cash Trust ("Money Market
Funds"), which are not considered "Kemper Mutual Funds" for purposes hereof. For
purposes of the Combined Purchases feature described above as well as for the
Letter of Intent and Cumulative Discount features described below, employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent may include: (a) Money Market
Funds as "Kemper Mutual Funds", (b) all classes of shares of any Kemper Mutual
Fund and (c) the value of any other plan investment, such as guaranteed
investment contracts and employer stock, maintained on such subaccount record
keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
43
<PAGE> 50
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of the contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of the contingent deferred sales charge
that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, they retain the cost and purchase date of the shares that
were originally purchased and exchanged.
GENERAL. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be exchanged until they have been owned for at least 10 days. In
addition, shares of a Kemper Mutual Fund (except Kemper Cash Reserves Fund)
acquired by exchange from another Kemper Mutual Fund, or from a Money Market
Fund, may not be exchanged thereafter until they have been owned for 15 days.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper Fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Service Company, Attention: Exchange Department, P.O. Box
419557, Kansas City, Missouri 64141-6557, or by telephone if the shareholder has
given authorization. Once the authorization is on file, the Shareholder Service
Agent will honor requests by telephone at 1-800-621-1048, subject to the
limitations on liability under "Redemption or Repurchase of Shares--General."
Any share certificates must be deposited prior to any exchange of such shares.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time.
44
<PAGE> 51
Exchanges may only be made for funds that are available for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Tax-Exempt New York Money
Market Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," including the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange. This privilege may not be used for the
exchange of shares held in certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from ANY PERSON to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable time to act upon the request.
EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically from the shareholder's account at a
bank, savings and loan or credit union into the shareholder's Fund account. By
enrolling in Bank Direct Deposit, the shareholder authorizes the Fund and its
agents to either draw checks or initiate Automated Clearing House debits against
the designated account at a bank or other financial institution. This privilege
may be selected by completing the appropriate section on the Account Application
or by contacting the Shareholder Service Agent for appropriate forms. A
shareholder may terminate his or her Plan by sending written notice to Kemper
Service Company, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
by a shareholder will become effective within thirty days after the Shareholder
Service Agent has received the request. A Fund may immediately terminate a
shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. The Funds may terminate or modify this privilege at any
time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the
45
<PAGE> 52
owner's account of any requested dollar amount to be paid to the owner or a
designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares may be redeemed (and Class A shares purchased under the Large Order NAV
Purchase Privilege and Class C shares in their first year following the
purchase) under a systematic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. The
brochures for plans with IFTC as custodian describe the current fees payable to
IFTC for its services as custodian. Investors should consult with their own tax
advisers before establishing a retirement plan.
PERFORMANCE
The 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.
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.
46
<PAGE> 53
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Russell 1000(R)
Index, the Russell 1000(R) Growth Index, the Wilshire Large Company Growth
Index, the Wilshire 750 Mid Cap Company Growth Index, the Standard &
Poor's/Barra Value Index, Standard & Poor's/Barra Growth Index and the Russell
1000(R) Value Index. The performance of a Fund such as the Total Return Fund may
also be compared to the combined performance of two indexes, such as a 60%/40%
combination of the Standard & Poor's 500 Stock Index and the Lehman Brothers
Government/Corporate Bond Index or for the Value+Growth Fund to a 50%/50%
combination of the Russell 1000(R) Growth Index and the Russell 1000(R) Value
Index. The performance of a Fund may also be compared to the performance of
other mutual funds or mutual fund indexes with similar objectives and policies
as reported by independent mutual fund reporting services such as Lipper
Analytical Services, Inc. ("Lipper"). Lipper performance calculations are based
upon changes in net asset value with all dividends reinvested and do not include
the effect of any sales charges.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National IndexTM or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
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 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.
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.
47
<PAGE> 54
CAPITAL STRUCTURE
The Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Aggressive Growth Fund was
organized as a business trust under the laws of Massachusetts on October 3,
1996. The Blue Chip Fund was organized as a business trust under the laws of
Massachusetts on May 28, 1987. The Growth Fund was organized as a business trust
under the laws of Massachusetts on October 24, 1985 and, effective January 31,
1986, that Fund pursuant to a reorganization succeeded to the assets and
liabilities of Kemper Growth Fund, Inc., a Maryland corporation organized in
1965. The Quantitative Fund was organized as a business trust under the laws of
Massachusetts on June 12, 1995. The Small Cap Fund was organized as a business
trust under the laws of Massachusetts on October 24, 1985 and, effective January
31, 1986, that Fund pursuant to a reorganization succeeded to the assets and
liabilities of Kemper Summit Fund, Inc., a Maryland corporation organized in
1968. Prior to February 1, 1992, the Small Cap Fund was known as "Kemper Summit
Fund." The Technology Fund was organized as a business trust under the laws of
Massachusetts on October 24, 1985 as Technology Fund and changed its name to
Kemper Technology Fund effective February 1, 1988. Effective January 31, 1986,
Technology Fund pursuant to a reorganization succeeded to the assets and
liabilities of Technology Fund, Inc., a Maryland corporation originally
organized as a Delaware corporation in 1948. Technology Fund was known as
Television Fund, Inc. until 1950 and as Television-Electronics Fund, Inc. until
1968. The Total Return Fund was organized as a business trust under the laws of
Massachusetts on October 24, 1985 and, effective January 31, 1986, that Fund
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
Total Return Fund, Inc., a Maryland corporation organized in 1963. The Total
Return Fund was known as Balanced Income Fund, Inc. until 1972 and as Supervised
Investors Income Fund, Inc. until 1977. The Value+Growth Fund was organized as a
business trust under the laws of Massachusetts on June 14, 1995 under the name
Kemper Value Plus Growth Fund and does business as Kemper Value+Growth Fund. The
investment manager invested the "seed money" as the sole shareholder of the
Aggressive Growth Fund before the public offering of its shares and, therefore,
controlled that Fund as of , 1996.
Each Fund may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. Currently, each Fund offers four
classes of shares. These are Class A, Class B and Class C shares, as well as
Class I shares, which have different expenses, which may affect performance, and
that are available for purchase exclusively by the following investors: (a)
tax-exempt retirement plans of ZKI and its affiliates; and (b) the following
investment advisory clients of ZKI and its investment advisory affiliates that
invest at least $1 million in a Fund: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and self-
directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. The Board of Trustees of a Fund may authorize the
issuance of additional classes and additional Portfolios if deemed desirable,
each with its own investment objectives, policies and restrictions. Since the
Funds may offer multiple Portfolios, each is known as a "series company." Shares
of a Fund have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each Fund's
Rule 12b-1 Plan. Shares of each class also have equal rights with respect to
dividends, assets and liquidation of such Fund subject to any preferences (such
as resulting from different Rule 12b-1 distribution fees), rights or privileges
of any classes of shares of the Fund. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Funds are not required to hold annual
shareholder meetings and do not intend to do so. However, they will hold special
meetings as required or deemed desirable for such purposes as electing trustees,
changing fundamental policies or approving an investment management agreement.
Subject to the Agreement and Declaration of Trust of each Fund, shareholders may
remove trustees. If shares of more than one Portfolio for any Fund are
outstanding, shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required, under the 1940 Act, such
as for the election of trustees or when voting by class is appropriate.
48
<PAGE> 55
Kemper Distributors, Inc.
222 S. Riverside Plaza
Chicago, Illinois 60606
KEF-1 12/96 [PRINTED ON RECYCLED PAPER LOGO]
KEMPER
EQUITY
FUNDS
, 1996
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
[KEMPER LOGO]
<PAGE> 56
KEMPER AGGRESSIVE GROWTH FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Investment Policies
and Techniques
14. Management of the Fund................... Investment Manager and Underwriter;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Underwriter;
Officers and Trustees
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends and Taxes
21. Underwriters............................. Investment Manager and Underwriter
22. Calculation of Performance Data.......... Performance
23. Financial Statements..................... Kemper Aggressive Growth Fund--Report of
Independent Auditors; Kemper Aggressive
Growth Fund--Statement of Net Assets
</TABLE>
<PAGE> 57
KEMPER EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
, 1996
KEMPER AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH FUND")
KEMPER BLUE CHIP FUND ("BLUE CHIP FUND")
KEMPER GROWTH FUND ("GROWTH FUND")
KEMPER QUANTITATIVE EQUITY FUND ("QUANTITATIVE FUND")
KEMPER SMALL CAPITALIZATION EQUITY FUND ("SMALL CAP FUND")
KEMPER TECHNOLOGY FUND ("TECHNOLOGY FUND")
KEMPER TOTAL RETURN FUND ("TOTAL RETURN FUND")
KEMPER VALUE PLUS GROWTH FUND ("VALUE+GROWTH FUND")
222 S. RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the combined prospectus of the
Funds dated , 1996. The prospectus may be obtained without charge
from the Funds.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Investment Restrictions................................................. B-1
Investment Policies and Techniques...................................... B-10
Portfolio Transactions.................................................. B-16
Investment Manager and Underwriter...................................... B-18
Purchase and Redemption of Shares....................................... B-24
Dividends and Taxes..................................................... B-25
Performance............................................................. B-26
Officers and Trustees................................................... B-41
Shareholder Rights...................................................... B-6
Aggressive Growth Fund -- Report of Independent Auditors
( , 1996)............................................... B-47
Aggressive Growth Fund -- Statement of Net Assets ( ,
1996)................................................................. B-48
Appendix -- Ratings of Fixed Income Investments......................... B-49
</TABLE>
The financial statements appearing in each Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund for which this Statement of Additional Information is requested accompanies
this document. (The foregoing is not applicable to the Aggressive Growth Fund,
which will commence operations on , 1996.)
KEF-13 12/96 [PRINTED ON RECYCLED PAPER LOGO]
<PAGE> 58
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of such Fund,
cannot be changed without approval of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
THE AGGRESSIVE GROWTH FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) With respect to 50% of its total assets, purchase securities of any issuer
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) if, as a result, more than 5% of the total value of the
Fund's assets would be invested in securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Invest more than 25% of its total assets in a single issuer (other than
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities).
(4) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(5) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(6) Pledge, hypothecate, mortgage or otherwise encumber its assets except to
secure borrowings permitted by restriction number 5 above. (The collateral
arrangements with respect to options, financial futures, foreign currency
transactions and delayed delivery transactions and any margin payments in
connection therewith are not deemed to be pledges or other encumbrances.)
(7) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(8) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities that are secured by real estate and securities of issuers that invest
or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
B-1
<PAGE> 59
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund has
adopted the following non-fundamental restrictions, which may be changed by
Board of Trustees without shareholder approval. The Aggressive Growth Fund may
not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of the Fund's
total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate. Any such purchases are
to be made in the open market where no profit to a sponsor or dealer results
from the purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation or acquisition of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
(iv) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
THE BLUE CHIP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction number
(4) above. (The collateral arrangements with respect to options, financial
futures and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
B-2
<PAGE> 60
(8) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including real estate limited
partnership interests), although it may invest in securities which are secured
by real estate and securities of issuers which invest or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Blue Chip
Fund may not:
(i) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(ii) Invest for the purpose of exercising control or management of another
issuer.
(iii) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers which
invest in or sponsor such programs.
(iv) Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
(v) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation and equity securities of issuers which are not
readily marketable.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchange. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant
B-3
<PAGE> 61
to procedures adopted by the Board of Trustees, provided that the total amount
of Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE GROWTH FUND AND THE VALUE+GROWTH FUND, EACH MAY NOT, AS A FUNDAMENTAL
POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry. Water,
communications, electric and gas utilities shall each be considered a separate
industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Growth
Fund did not borrow money as permitted by investment restriction number 4 in the
latest fiscal year and neither Fund has a present intention of borrowing during
the current year. The Fund has adopted the
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following non-fundamental restrictions, which may be changed by the Board of
Trustees without shareholder approval. The Growth Fund and the Value+Growth
Fund, each may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable securities in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE SMALL CAP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's
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securities or receivables or transfer or assign or otherwise encumber them in an
amount exceeding the amount of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry. Water,
communications, electric and gas utilities shall each be considered a separate
industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Small Cap
Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers or
trustees of the Fund or its investment adviser owns beneficially more than 1/2
of 1% of the securities of such issuer and together own more than 5% of the
securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
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(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE QUANTITATIVE FUND AND THE TECHNOLOGY FUND, EACH MAY NOT, AS A FUNDAMENTAL
POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(7) Invest 25% or more of its total assets in any one industry. Water,
communications, electric and gas utilities shall each be considered a separate
industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The
Technology Fund did not borrow money as permitted by investment restriction
number 4 in the latest fiscal year
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and neither Fund has a present intention of borrowing during the current year.
The Quantitative Fund and the Technology Fund adopted the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval. These Funds may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition or reorganization, or by purchase in the
open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by it, (ii) 5% of
its total assets would be invested in any one such company, and (iii) 10% of
total assets would be invested in such securities.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts. (The Quantitative Fund currently does not intend to invest
more than 5% of its net assets in securities of real estate investment trusts.)
THE TOTAL RETURN FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
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(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowings secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry. Water,
communications, electric and gas utilities shall each be considered a separate
industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Total
Return Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and in equity securities which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
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(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment funds.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in options transactions and may engage in
financial futures transactions in accordance with its respective investment
objectives and policies. The Blue Chip, Growth, Small Cap, Total Return and
Value+Growth Funds each may invest in put and call options but may not write
(sell) options. The Aggressive Growth, Quantitative and Technology Funds may
write (sell) covered call options and secured put options and may purchase put
and call options. Each such Fund intends to engage in such transactions if it
appears to the investment manager to be advantageous for the Fund to do so in
order to pursue its investment objective and also to hedge against the effects
of market risks but not for speculative purposes. The use of futures and
options, and possible benefits and attendant risks, are discussed below along
with information concerning other investment policies and techniques.
OPTIONS ON SECURITIES. The Aggressive Growth, Quantitative and Technology Funds
may write (sell) "covered" call options on securities as long as the Fund owns
the underlying securities subject to the option or an option to purchase the
same underlying securities, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and maintain for the
term of the option a segregated account consisting of cash or other liquid
securities ("eligible securities") to the extent required by applicable
regulation in connection with the optioned securities. The Aggressive Growth,
Quantitative and Technology Funds may write "covered" put options provided that,
as long as the Fund is obligated as a writer of a put option, the Fund will own
an option to sell the underlying securities subject to the option, having an
exercise price equal to or greater than the exercise price of the "covered"
option, or it will deposit and maintain in a segregated account eligible
securities having a value equal to or greater than the exercise price of the
option. A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during or at
the end of the option period. A put option gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying security at the
exercise price during or at the end of the option period. The premium received
for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to such
market price, the price volatility of the underlying security, the option
period, supply and demand and interest rates. The Funds may write (for the
Quantitative and Technology Funds) or purchase spread options, which are options
for which the exercise price may be a fixed dollar spread or yield spread
between the security underlying the option and another security that is used as
a bench mark. The exercise price of an option may be below, equal to or above
the current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the
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related security is protected by ownership of a put option against any decline
in that security's price below the exercise price less the amount paid for the
option. The ability to purchase put options allows a Fund to protect capital
gains in an appreciated security it owns, without being required to actually
sell that security. At times a Fund would like to establish a position in a
security upon which call options are available. By purchasing a call option, a
Fund is able to fix the cost of acquiring the security, this being the cost of
the call plus the exercise price of the option. This procedure also provides
some protection from an unexpected downturn in the market, because a Fund is
only at risk for the amount of the premium paid for the call option which it
can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium, plus the interest income on the eligible securities that
have been segregated. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received and
any interest income earned on the eligible securities that have been segregated.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Funds may deal in over-the-counter
traded options ("OTC options"). OTC options differ from exchange traded options
in several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event a Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are
exchange traded options. Since there is no exchange, pricing is normally done by
reference to information from market makers, which information is carefully
monitored by the investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Funds understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The
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investment manager disagrees with this position and has found the dealers with
which it engages in OTC options transactions generally agreeable to and capable
of entering into closing transactions. The Funds have adopted procedures for
engaging in OTC options for the purpose of reducing any potential adverse effect
of such transactions upon the liquidity of the Funds' portfolios. A brief
description of such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers that have been
specifically approved by the investment manager pursuant to procedures adopted
by the Fund's Board of Trustees. The investment manager believes that the
approved dealers should be able to enter into closing transactions if necessary
and, therefore, present minimal credit risks to a Fund. The investment manager
will monitor the credit-worthiness of the approved dealers on an ongoing basis.
A Fund currently will not engage in OTC options transactions if the amount
invested by the Fund in OTC options, plus (for the Aggressive Growth,
Quantitative and Technology Funds) a "liquidity charge" related to OTC options
written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets. The "liquidity charge"
referred to above is computed as described below.
The Aggressive Growth, Quantitative and Technology Funds anticipate entering
into agreements with dealers to which the Fund sells OTC options. Under these
agreements either Fund would have the absolute right to repurchase the OTC
options from the dealer at any time at a price no greater than a price
established under the agreements (the "Repurchase Price"). The "liquidity
charge" referred to above for a specific OTC option transaction will be the
Repurchase Price related to the OTC option less the intrinsic value of the OTC
option. The intrinsic value of an OTC call option for such purposes will be the
amount by which the current market value of the underlying security exceeds the
exercise price. In the case of an OTC put option, intrinsic value will be the
amount by which the exercise price exceeds the current market value of the
underlying security. If there is no such agreement requiring a dealer to allow
either Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. The Blue Chip, Growth, Small Cap, Total Return
and Value+Growth Funds may purchase, and the Aggressive Growth, Quantitative and
Technology Funds may purchase and write, call and put options on securities
indices in an attempt to hedge against market conditions affecting the value of
securities that the Fund owns or intends to purchase, and not for speculation.
Through the writing or purchase of index options, a Fund can achieve many of the
same objectives as through the use of options on individual securities. Options
on securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to such difference between the closing price of the index and
the exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike
security options, all settlements are in cash and gain or loss depends upon
price movements in the market generally (or in a particular industry or segment
of the market), rather than upon price movements in individual securities. Price
movements in securities that the Fund owns or intends to purchase will probably
not correlate perfectly with movements in the level of an index since the prices
of such securities may be affected by somewhat different factors and, therefore,
the Fund bears the risk that a loss on an index option would not be completely
offset by movements in the price of such securities.
When the Aggressive Growth, Quantitative or Technology Fund writes an option on
a securities index, it will segregate, and mark-to-market, eligible securities
to the extent required by applicable regulations in connection with a put or a
call. In addition, where a Fund writes a call option on a securities index at a
time when the contract value exceeds the exercise price, the Fund will segregate
and mark-to-market, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess.
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A Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on futures contracts and
index options involve risks similar to those risks relating to transactions in
financial futures contracts described below. Also, an option purchased by a Fund
may expire worthless, in which case the Fund would lose the premium paid
therefor.
FINANCIAL FUTURES CONTRACTS. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery without having to make or take
delivery of the underlying assets by purchasing (or selling, as the case may be)
on a commodities exchange an identical futures contract calling for delivery in
the same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying securities or
other assets. All transactions in the futures market are made, offset or
fulfilled through a clearing house associated with the exchange on which the
contracts are traded. A Fund will incur brokerage fees when it purchases or
sells contracts, and will be required to maintain margin deposits. At the time a
Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, called "variation margin," to and from the broker are made on a daily
basis as the market price of the futures contract fluctuates. The costs incurred
in connection with futures transactions could reduce a Fund's return. Futures
contracts entail risks. If the investment manager's judgment about the general
direction of markets or exchange rates is wrong, the overall performance may be
poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. A Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the
B-13
<PAGE> 71
period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. A Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by a Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a forward currency exchange purchase, a Fund will maintain eligible
securities in a segregated account. A Fund will use cover in connection with
selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities that the
Fund holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Funds may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Funds may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, a Fund may be able to achieve many of the same objectives as through
forward foreign currency exchange contracts more effectively and possibly at a
lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days ("term") from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. The investment manager believes that it
is important to have the flexibility to enter into such
B-14
<PAGE> 72
forward contracts when it determines that to do so is in the best interests of a
Fund. A Fund will not speculate in foreign currency exchange.
If a Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. A
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. A Fund segregates eligible securities to the
extent required by applicable regulation in connection with forward foreign
currency exchange contracts entered into for the purchase of a foreign currency.
A Fund generally does not enter into a forward contract with a term longer than
one year.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. No Fund currently intends to invest more than 5% of
its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Aggressive Growth and Blue Chip Funds may make
short sales against-the-box for the purpose of deferring realization of gain or
loss for federal income tax purposes. A short sale "against-the-box" is a short
sale in which a Fund owns at least an equal amount of the securities sold short
or securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issue as, and at least equal in
amount to, the securities sold short. A Fund may engage in such short sales only
to the extent that not more than 10% of the Fund's total assets (determined at
the time of the short sale) is held as collateral for such sales. Each Fund does
not currently intend, however, to engage in such short sales to the extent that
more than 5% of its net assets will be held as collateral therefor during the
current year.
OTHER CONSIDERATIONS--HIGH YIELD (HIGH RISK) BONDS. As reflected in the
prospectus, the Total Return Fund may invest a portion of its assets in fixed
income securities that are in the lower rating categories of recognized rating
agencies or are non-rated. These lower rated or non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also tend to be more sensitive to economic conditions
than are higher rated
B-15
<PAGE> 73
securities. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, regarding lower rated bonds may depress the prices for
such securities. These and other factors adversely affecting the market value of
high yield securities will adversely affect the Fund's net asset value. Although
some risk is inherent in all securities ownership, holders of fixed income
securities have a claim on the assets of the issuer prior to the holders of
common stock. Therefore, an investment in fixed income securities generally
entails less risk than an investment in common stock of the same issuer.
High yield securities frequently are issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or a corporate takeover. Companies that issue such high yielding
securities often are highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with acquiring
the securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or recession, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently with similar maturities and
credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.
Additional information concerning high yield securities appears under
"Appendix--Ratings of Fixed Income Investments."
PORTFOLIO TRANSACTIONS
Zurich Kemper Investments ("ZKI") and its affiliates furnish investment
management services for the Kemper Funds and other clients including affiliated
insurance companies. As described in the Funds' prospectus, Zurich Investment
Management Limited ("ZIML") provides analysis, research, execution and trading
services with respect to foreign securities and, for the Value+Growth Fund,
Dreman Value Advisors, Inc. ("DVA") is the sub-adviser. ZKI and its affiliates
share some common research and trading facilities. DVA is the sub-adviser for
the Value+Growth Fund and an investment manager or sub-adviser for other Kemper
Funds. At times investment decisions may be made to purchase or sell the same
investment securities for a Fund and for one or more of the other clients
managed by ZKI or its affiliates. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security through the
same trading facility, the transactions are allocated as to amount and price in
a manner considered equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options a Fund
will be able to write on a particular security.
B-16
<PAGE> 74
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to a Fund. On the
other hand, the ability of a Fund to participate in volume transactions may
produce better executions for a Fund in some cases. The Board of Trustees of
each Fund believes that the benefits of ZKI's, ZIML's and DVA's organizations
outweigh any limitations that may arise from simultaneous transactions or
position limitations.
ZKI, ZIML and DVA, in effecting purchases and sales of portfolio securities for
the account of a Fund, will implement each Fund's policy of seeking best
execution of orders, which includes best net prices, except to the extent that
ZKI, ZIML and DVA may be permitted to pay higher brokerage commissions for
research services as described below. Consistent with this policy, orders for
portfolio transactions are placed with broker-dealer firms giving consideration
to the quality, quantity and nature of each firm's professional services, which
include execution, clearance procedures, wire service quotations and statistical
and other research information provided to a Fund and ZKI and its affiliates.
Subject to the policy of seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients, including clients of affiliated companies. Since
it is only supplementary to ZKI's, ZIML's and DVA's own research efforts and
must be analyzed and reviewed by their staff, the receipt of research
information is not expected to materially reduce expenses. In selecting among
firms believed to meet the criteria for handling a particular transaction, ZKI,
ZIML and DVA may give consideration to those firms that have sold or are selling
shares of the Funds and of other funds managed by ZKI or its affiliates, as well
as to those firms that provide market, statistical and other research
information to a Fund and ZKI and its affiliates, although ZKI, ZIML and DVA are
not authorized to pay higher commissions to firms that provide such services,
except as described below.
ZKI, ZIML and DVA may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include, among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation equipment and software; and research or
analytical computer software and services. Where products or services have a
"mixed use," a good faith effort is made to make a reasonable allocation of the
cost of the products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by ZKI
or one of its affiliates in cash. Subject to Section 28(e) and procedures
adopted by the Board of Trustees of each Fund, a Fund could pay a firm that
provides research services commissions for effecting a securities transaction
for the Fund in excess of the amount other firms would have charged for the
transaction if ZKI, ZIML or DVA determines in good faith that the greater
commission is reasonable in relation to the value of the research services
provided by the executing firm viewed in terms either of a particular
transaction or ZKI's, ZIML's or DVA's overall responsibilities to the Fund or
other clients. Not all of such research services may be useful or of value in
advising a particular Fund. Research benefits will be available for all clients
of ZKI and its affiliates. The investment management fee paid by a Fund to ZKI
is not reduced because these research services are received.
B-17
<PAGE> 75
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal years and, for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided (except for
the Aggressive Growth Fund, which will commence operations on ,
1996).
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN FISCAL
FUND FISCAL 1996 1996 FISCAL 1995 FISCAL 1994
- ------------------------------------------ ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Blue Chip................................. % $ 506,000 $ 565,000
Growth.................................... % $ 6,470,000 $ 7,110,000
Quantitative.............................. *
Small Cap................................. % $ 5,975,000 $ 2,782,000
Technology................................ % $ 3,504,000 $ 1,644,000
Total Return.............................. % $ 8,309,000 $ 7,705,000
Value+Growth.............................. % $ 6,000 N.A.
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 S. Riverside
Plaza, Chicago, Illinois 60606, is each Fund's investment manager. ZKI is wholly
owned by ZKI Holding Corp. ZKI Holding Corp. is a more than 90% owned subsidiary
of Zurich Holding Company of America, Inc., which is a wholly-owned subsidiary
of Zurich Insurance Company, an internationally recognized company providing
services in life and non-life insurance, reinsurance and asset management.
Pursuant to investment management agreements, ZKI acts as each Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, bookkeeping and
administrative services, and permits any of its officers or employees to serve
without compensation as trustees or officers of 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 officers or employees of ZKI), 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, taxes and membership
dues. Each Fund bears the expenses of registration of its shares with the
Securities and Exchange Commission, while Kemper Distributors, Inc. ("KDI"), as
principal underwriter, pays the cost of qualifying and maintaining the
qualification of each Fund's shares for sale under the securities laws of the
various states. ZKI has agreed to reimburse each Fund to the extent required by
applicable state expense limitations should all operating expenses of each Fund,
including the investment management fees of ZKI but excluding taxes, interest,
distribution fees, extraordinary expenses, brokerage commissions or transaction
costs and any other properly excludable expenses, exceed the applicable state
expense limitations. The Funds believe that, effective January 1, 1997, there
will be no state expense limitations in effect.
The investment management agreements provide that ZKI 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
ZKI 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. The agreement for the
Aggressive Growth Fund has an initial term ending March 1, 1998. 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 Fund's
become subject to an investment management agreement,
B-18
<PAGE> 76
the provisions concerning continuation, amendment and termination shall be on a
Fund by Fund basis. Additional Funds may be subject to a different agreement.
The current investment management fee rates paid by the Funds are in the
prospectus, see "Investment Manager and Underwriter." The investment management
fees paid by each Fund for its last three fiscal years are shown in the table
below (except for the Aggressive Growth Fund, which will not commence operations
until , 1996).
<TABLE>
<CAPTION>
FUND FISCAL 1996 FISCAL 1995 FISCAL 1994
- ----------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Blue Chip............................................ $ 903,000 1,072,000
Growth............................................... $ 12,349,000 9,634,000
Quantitative......................................... $ (1) N.A. N.A.
Small Cap............................................ $ (3) 3,273,000(4) 3,746,000(5)
Technology........................................... $ 4,542,000 3,296,000
Total Return......................................... $ 15,147,000 10,997,000
Value+Growth......................................... $ (2) 1,000 N.A.
</TABLE>
- ---------------
(1) For the period February 15, 1996 to November 30, 1996.
(2) For the period October 16, 1995 to November 30, 1995.
(3) Fee was decreased $ from $ base fee.
(4) Fee was increased $ from $ base fee.
(5) Fee was decreased $ from $ base fee.
The Small Cap Fund pays a base annual investment management fee, payable
monthly, at the rate of .65 of 1% of the average daily net assets of the Fund.
This base fee is subject to upward or downward adjustment on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The Small
Cap Fund will pay an additional monthly fee at an annual rate of .05% of such
average daily net assets for each percentage point (fractions to be prorated) by
which the performance of the Class A shares of the Fund exceeds that of the
Index for the immediately preceding twelve months; provided that such additional
monthly fee shall not exceed 1/12 of .30% of the average daily net assets.
Conversely, the compensation payable by the Small Cap Fund will be reduced by an
annual rate of .05% of such average daily net assets for each percentage point
(fractions to be prorated) by which the performance of the Class A shares of the
Fund falls below that of the Index, provided that such reduction in the monthly
fee shall not exceed 1/12 of .30% of the average net assets. The total fee on an
annual basis can range from .35% to .95% of average daily net assets. The Small
Cap Fund's investment performance during any twelve month period is measured by
the percentage difference between (a) the opening net asset value of one Class A
share of the Fund and (b) the sum of the closing net asset value of one Class A
share of the Fund plus the value of any income and capital gain dividends on
such share during the period treated as if reinvested in Class A shares of the
Fund at the time of distribution. The performance of the Index is measured by
the percentage change in the Index between the beginning and the end of the
twelve month period with cash distributions on the securities which comprise the
Index being treated as reinvested in the Index at the end of each month
following the payment of the dividend. Each monthly calculation of the incentive
portion of the fee may be illustrated as follows: if over the preceding twelve
month period the Small Cap Fund's adjusted net asset value applicable to one
Class A share went from $10.00 to $11.00 (10% appreciation), and the Index,
after adjustment, went from 100 to 104 (or only 4%), the entire incentive
compensation would have been earned by ZKI. On the other hand, if the Index rose
from 100 to 110 (10%), no incentive fee would have been payable. A rise in the
Index from 100 to 116 (16%) would have resulted in the minimum monthly fee of
1/12 of .35%. Since the computation is not cumulative from year to year, an
additional management fee may be payable with respect to a particular year,
although the Small Cap Fund's performance over some longer period of time may be
less favorable than that of the Index. Conversely, a lower management fee may be
payable in a year in which the performance of the Fund's Class A shares' is less
favorable than that of the Index, although the performance of the Fund's Class A
shares over a longer period of time might be better than that of the Index.
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<PAGE> 77
VALUE+GROWTH FUND SUB-ADVISER. Dreman Value Advisors, Inc. ("DVA"), 10 Exchange
Place, Jersey City, New Jersey 07302, is the sub-adviser for the value portion
of the Value+Growth Fund. DVA is a wholly owned subsidiary of ZKI. DVA will act
as sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
ZKI.
Under the terms of the Sub-Advisory Agreement, DVA will manage the value portion
of the Value+Growth Fund's portfolio and will provide such investment advice,
research and assistance as ZKI may, from time to time, reasonably request. DVA
may, under the terms of the Sub-Advisory Agreement, render similar services to
others including other investment companies. For its services, DVA will receive
from ZKI a monthly fee at the annual rate of .25% of the Fund's average daily
net assets. DVA permits any of its officers or employees to serve without
compensation as trustees or officers of the Value+Growth Fund if elected to such
positions.
The Sub-Advisory Agreement provides that DVA will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVA in the performance of its duties or from reckless disregard by DVA of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement continues by its terms from year to year if such
continuance is specifically approved at least annually (a) by a majority of the
trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as trustees of the Fund, and (b) by the
shareholders or the Board of Trustees of the Fund. The Sub-Advisory Agreement
may be terminated at any time upon 60 days' notice by ZKI, DVA or by the Board
of Trustees of the Fund or by majority vote of the outstanding shares of the
Fund, and will terminate automatically upon assignment or upon termination of
the Fund's investment management agreement.
The sub-adviser fees paid by ZKI to DVA for the Value+Growth Fund for the fiscal
year ended November 30, 1996 were $ and for the period October 16,
1995 to November 30, 1995 were $ .
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), a wholly owned subsidiary of ZKI, is the principal underwriter and
distributor for the shares of each Fund and acts as agent of each Fund in the
continuous offering of its shares. KDI bears all its expenses of providing
services pursuant to the distribution agreements,
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. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund 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
Investment Company Act of 1940. 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.
B-20
<PAGE> 78
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
fiscal years noted (except for the Aggressive Growth Fund, which will not
commence operations until , 1996).
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS PAID TO KEMPER
COMMISSIONS RETAINED UNDERWRITER AFFILIATED
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS FIRMS
- ----------------------------- ----------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Blue Chip.................... 1996 $
1995 $ 33,000 225,000 29,000
1994 $ 64,000 398,000 68,000
Growth....................... 1996 $
1995 $266,000 2,130,000 326,000
1994 $489,000 3,861,000 591,000
Quantitative................. 1996*
1995 N.A N.A. N.A.
1994 N.A N.A. N.A.
Small Cap.................... 1996 $
1995 $105,000 798,000 133,000
1994 $182,000 1,264,000 243,000
Technology................... 1996 $
1995 $116,000 840,000 218,000
1994 $ 43,000 218,000 38,000
Total Return................. 1996 $
1995 $206,000 1,642,000 218,000
1994 $523,000 4,036,000 693,000
Value+Growth................. 1996 $
1995** $ 0 48,000 3,000
1994 $ N.A. N.A. N.A.
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
** For the period October 16, 1995 to November 30, 1995.
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides for
fees charged to Class B and Class C shares that are used by KDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Funds and of KDI in connection with the Rule 12b-1
Plans for the Class B and Class C Shares are set forth below (except for the
Aggressive Growth Fund, which will not commence operations until ,
1996). A portion of the marketing, sales and operating expenses shown below
could be considered overhead expense.
<TABLE>
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID
BY UNDERWRITER
DISTRIBUTION CONTINGENT TOTAL ----------------------------------
FEES PAID DEFERRED COMMISSIONS COMMISSIONS ADVERTISING MARKETING
FUND CLASS B FISCAL BY FUND TO SALES CHARGES PAID BY UNDERWRITER PAID BY UNDERWRITER AND PROSPECTUS AND SALES
SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS TO AFFILIATED FIRMS LITERATURE PRINTING EXPENSES
- --------------- ------ ----------- -------------- ------------------- ------------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip...... 1996 $
Growth......... 1996 $
Quantitative... 1996* $
Small Cap...... 1996 $
Technology..... 1996 $
Total Return... 1996 $
Value+
Growth....... 1996 $
<CAPTION>
OTHER
DISTRIBUTION
EXPENSES PAID BY
UNDERWRITER
-------------------
MISC.
FUND CLASS B OPERATING INTEREST
SHARES EXPENSES EXPENSES
- --------------- --------- --------
<S> <C> <C>
Blue Chip......
Growth.........
Quantitative...
Small Cap......
Technology.....
Total Return...
Value+
Growth.......
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
B-21
<PAGE> 79
<TABLE>
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY
TOTAL DISTRIBUTION UNDERWRITER
DISTRIBUTION DISTRIBUTION FEES PAID ------------------------------------
FEES PAID FEES PAID BY UNDERWRITER ADVERTISING MARKETING
BY FUND BY UNDERWRITER TO AFFILIATED AND PROSPECTUS AND SALES
FUND CLASS C SHARES FISCAL YEAR TO UNDERWRITER TO FIRMS FIRMS LITERATURE PRINTING EXPENSES
- -------------------- ----------- -------------- -------------- -------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip........... 1996 $
Growth.............. 1996 $
Quantitative*....... 1996 $
Small Cap........... 1996 $
Technology.......... 1996 $
Total Return........ 1996 $
Value+Growth........ 1996 $
<CAPTION>
MISC.
OPERATING INTEREST
FUND CLASS C SHARES EXPENSES EXPENSES
- -------------------- --------- --------
<S> <<C> <C>
Blue Chip...........
Growth..............
Quantitative*.......
Small Cap...........
Technology..........
Total Return........
Value+Growth........
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to .25% of average daily net assets of Class A, B and C shares of each
Fund.
KDI has entered into related arrangements with various financial services firms,
such as broker-dealers or banks ("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 shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other 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, payable quarterly, at an annual rate
of up to .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 .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 .25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid include broker-dealers
affiliated with KDI.
B-22
<PAGE> 80
The following information concerns the administrative services fee paid by each
Fund (except for the Aggressive Growth Fund, which will not commence operations
until , 1996.
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES
PAID BY FUND SERVICE FEES SERVICE FEES
---------------------------------- PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
FUND FISCAL YEAR CLASS A CLASS B CLASS C TO FIRMS TO AFFILIATED FIRMS
- ------------------ ----------- ---------- --------- ------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip......... 1996
1995 $ 361,000 19,000 2,000 386,000 69,000
1994* $ 407,000 2,000 -- 413,000 92,000
Growth............ 1996
1995 $3,633,000 1,721,000 8,000 5,301,000 693,000
1994* $3,628,000 553,000 1,000 4,347,000 618,000
Quantitative...... 1996**
1995 N.A. N.A. N.A. N.A. N.A.
1994 N.A. N.A. N.A. N.A. N.A.
Small Cap......... 1996
1995 $1,141,000 442,000 4,000 1,579,000 334,000
1994* $1,066,000 124,000 -- 1,212,000 321,000
Technology........ 1996
1995 $1,187,000 56,000 2,000 1,269,000 116,000
1994* $ 873,000 1,000 -- 885,000 83,000
Total Return...... 1996
1995 $4,047,000 2,710,000 9,000 6,685,000 1,010,000
1994* $3,635,000 1,212,000 1,000 5,063,000 959,000
Value+Growth...... 1996
1995*** $ 0 0 0 5,000 0
1994 N.A. N.A. N.A. N.A. N.A.
</TABLE>
- ---------------
* Class B and Class C shares were first offered on May 31, 1994.
** For the period February 15, 1996 to November 30, 1996.
*** For the period October 16, 1995 to November 30, 1995.
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 a Fund,
in its discretion, may approve basing the fee to KDI on all Fund assets in the
future.
Certain trustees or officers of a Fund are also directors or officers of ZKI,
DVA or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of each Fund maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of each Fund held outside of the United States. They attend
to the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by each Fund. IFTC is also each Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of ZKI, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC, annual account fees of $6 per
B-23
<PAGE> 81
account plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B only) and
out-of-pocket expense reimbursement. IFTC's fee is reduced by certain earnings
credits in favor of the Fund. The following shows for each Fund's 1996 fiscal
year (except the Aggressive Growth Fund), the shareholder service fees IFTC
remitted to KSvC. As noted previously, the Aggressive Growth Fund will not
commence operations until , 1996.
<TABLE>
<CAPTION>
FEES IFTC
FUND PAID TO KSVC
------------
<S> <C>
Blue Chip........................................................................... $
Growth.............................................................................. $
Quantitative*....................................................................... $
Small Cap........................................................................... $
Technology.......................................................................... $
Total Return........................................................................ $
Value+Growth........................................................................ $
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
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.
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 (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.
B-24
<PAGE> 82
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.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Quantitative, Small Cap, Technology
and Value+Growth Funds; semi-annually for the Blue Chip Fund; and quarterly for
the Total Return Fund. Each Fund distributes any net realized short-term and
long-term capital gains at least annually. The quarterly distribution to
shareholders of the Total Return Fund may include short-term capital gains.
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 paying such dividends unless shareholders
indicate in writing that they wish to receive them in cash or in shares of other
Kemper Funds as described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. Each Fund intends to continue to qualify (or, for the Aggressive Growth
Fund, intends to qualify) as a regulated investment company under Subchapter M
of the Code and, if so qualified, will not be liable for federal income taxes to
the extent its earnings are distributed. One of the Subchapter M requirements to
be satisfied is that less than 30% of a Fund's gross income during its fiscal
year must be derived from gains (not reduced by losses) from the sale or other
disposition of securities and certain other investments held for less than three
months. A Fund may be limited in its options, futures and foreign currency
transactions in order to prevent recognition of such gains.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options and futures held by the Fund at the end of
the fiscal year. Under these provisions, 60% of any capital gain net income or
loss recognized will generally be treated as long-term and 40% as short-term.
However, although certain forward contracts and futures contracts on foreign
currency are marked-to-market, the gain or loss is generally ordinary under
Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that the Fund had unrealized gains in offsetting positions at year end.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if a Fund sold a foreign bond and part of the
B-25
<PAGE> 83
gain or loss on the sale was attributable to an increase or decrease in the
value of a foreign currency, then the currency gain or loss may be treated as
ordinary income or loss. If such transactions result in greater net ordinary
income, the dividends paid by the Fund will be increased; if the result of such
transactions is lower net ordinary income, a portion of dividends paid could be
classified as a return of capital.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. Each Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of 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.
A Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These various measures of performance are described
below. Performance information will be computed separately for each class.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the 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
B-26
<PAGE> 84
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 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. Total return figures for Class A
shares for various periods are set forth in the tables below.
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. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage thereafter
and becomes zero after six years. Redemption of Class C shares may be subject to
a 1% contingent deferred sales charge in the first year following purchase.
Returns and net asset value will fluctuate. Factors affecting 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.
The figures below show performance information for various periods. Comparative
information for certain indices is also included. Please note the differences
and similarities between the investments which a Fund may purchase and the
investments measured by the applicable indices. The net asset values and returns
of each class of shares of the Funds will also fluctuate. No adjustment has been
made for taxes payable on dividends. The periods indicated were ones of
fluctuating securities prices and interest rates. As indicated previously, the
Aggressive Growth Fund will not commence operations until , 1996.
B-27
<PAGE> 85
BLUE CHIP FUND -- OCTOBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage
TOTAL $10,000 Capital Gain Dividends Ending Percentage Value Increase Dow Jones
RETURN Investment Dividends Reinvested Value Increase (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (adjusted)(1) (adjusted)(1) (1) (1) Average(3)
- -------------------- ---------- ------------ ---------- ------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
<CAPTION>
Russell Lipper U.S.
TOTAL Standard Consumer 1000(R) Growth Treasury
RETURN & Poor's Price Growth and Income Bill
TABLE 500(4) Index(5) Index(6) Fund(7) Index(8)
- -------------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund(+)
Five Years
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
Lipper
Russell Growth U.S.
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R) and Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Income Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(7) Index(8)
----------------- ------- ------- ------- --------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(++)
Five Years
One Year
</TABLE>
- ---------------
(+) Since November 23, 1987 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-28
<PAGE> 86
GROWTH FUND -- SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
- ----------------- -------- -------- -------- ------- --------
<S> <C<C> <C> <C> <C> <C>
Life of Fund(+)
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9)
---------------- ------- ------- ------- ---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of
Fund(++)
Fifteen Years
Ten Years
Five Years
One Year
<CAPTION>
U.S.
AVERAGE ANNUAL Treasury
TOTAL RETURN Bill
TABLE Index(8)
---------------- --------
<S> <C>
Life of Fund(+)
Life of
Fund(++)
Fifteen Years
Ten Years
Five Years
One Year
</TABLE>
- ---------------
(+) Since April 4, 1966 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-29
<PAGE> 87
QUANTITATIVE EQUITY FUND -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
CLASS B SHARES
Life of Fund(+)
CLASS C SHARES
Life of Fund(+)
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
- ----------------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(+)
Life of Fund(+)
</TABLE>
<TABLE>
<CAPTION>
Dow Russell U.S.
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9) Index(8)
- ---------------- ------- ------- ------- ---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
</TABLE>
- ---------------
(+) Since February 15, 1996 for Class A, B and C shares. Average annual total
return not shown for Class A, B and C shares.
NA--Not Available.
B-30
<PAGE> 88
SMALL CAP FUND -- SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industria
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ---------------------------- ------------ ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
<CAPTION>
Russell
TOTAL Standard Consumer Wilshire 1000(R)
RETURN & Poor's Price Mid Cap Growth
TABLE 500(4) Index(5) Growth(10) Index(6)
- ------------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Life of Fund(+)
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer Wilshire 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Mid Cap Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Growth(10) Index(6)
- ------------------------------ ------- ------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(++)
Fifteen Years
Ten Years
Five Years
One Year
</TABLE>
- ---------------
(+) Since February 20, 1969 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-31
<PAGE> 89
TECHNOLOGY FUND -- OCTOBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
- ----------------- ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
<CAPTION>
Russell
TOTAL Dow Jones Standard Consumer 1000(R)
RETURN Industrial & Poor's Price Growth
TABLE Average(3) 500(4) Index(5) Index(6)
- ----------------- ---------- -------- -------- --------
CLASS A SHARES
<S> <C><C> <C> <C> <C>
Life of Fund(+)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
Russell
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
- ----------------- ------- ------- ------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(++)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
</TABLE>
- ---------------
(+) Since September 7, 1948 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-32
<PAGE> 90
TOTAL RETURN FUND -- OCTOBER 31, 1996
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage Dow
TOTAL $10,000 Gain Dividends Value Increase Value Increase Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- --------------------- -------- --------- --------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++)
One Year
Year to Date
CLASS C SHARES
Life of Fund(++)
One Year
Year to Date
<CAPTION>
Standard Russell
TOTAL & Consumer 1000(R) Lipper Lehman Bros.
RETURN Poor's Price Growth Balanced Gov't/Corp.
TABLE 500(4) Index(5) Index(6) Fund(11) Index(12)
- --------------------- ------- ----- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Life of Fund(+)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
Life of Fund(++)
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Russell
ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R) Lipper
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Balanced
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(11)
- ------------------ ------- ------- ------- --------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(++)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
<CAPTION>
AVERAGE
ANNUAL Lehman Bros.
TOTAL RETURN Gov't/Corp.
TABLE Index(12)
- ------------------ ------------
<S> <C>
Life of Fund(+)
Life of Fund(++)
Twenty-five Years
Fifteen Years
Ten Years
Five Years
One Year
</TABLE>
- ---------------
(+) Since March 2, 1964 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-33
<PAGE> 91
VALUE+GROWTH FUND -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+)
CLASS B SHARES
Life of Fund(+)
CLASS C SHARES
Life of Fund(+)
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
- ----------------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund(+)
Life of Fund(+)
Life of Fund(+)
</TABLE>
<TABLE>
<CAPTION>
Dow Russell U.S.
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9) Index(8)
- ---------------- ------- ------- ------- ---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)
</TABLE>
- ---------------
(+) Since October 16, 1995 for Class A, B and C shares. Average annual total
return not shown for Class A, B and C shares.
NA--Not Available.
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were adjusted
for the maximum initial sales charge at the beginning of the period, which is
5.75%. The Initial Investment for Class B and Class C shares was not adjusted.
Amounts were adjusted for Class B shares for the contingent deferred sales
charge that may be imposed at the end of the period based upon the schedule for
shares sold currently, see "Redemption or Repurchase of Shares" in the
prospectus. No adjustments were made to Class C shares since they do not have an
initial or contingent deferred sales charge.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange. Assumes
reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange. Assumes
reinvestment of dividends. Source is Towers Data Systems.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. Assumes reinvestment of dividends. Source is Lipper Analytical
Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of certain mutual funds tracked by Lipper Analytical
Services, Inc. The largest mutual funds within the Lipper "growth and income
investment" objective category are included in the index. Performance is based
on changes in net asset value with all dividends reinvested and with no
adjustment for sales charges.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Lipper Growth Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services, Inc.
The largest mutual funds within the Lipper "growth investment" objective
category are included in the index. Performance is based on changes in net asset
value with all dividends reinvested and with no adjustment for sales changes.
(10) The Wilshire Mid Cap Growth Index is a market capitalization-weighted index
including domestic equity securities chosen from the Wilshire Mid-Cap 750 which
exhibit growth characteristics. Assumes reinvestment of dividends. Source is
Wilshire Associates Incorporated.
(11) The Lipper Balanced Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services, Inc.,
New York, New York. The largest mutual funds within the Lipper "balanced
investment" objective category are included in the index. Performance is based
on changes in net asset value with all dividends reinvested and with no
adjustment for sales charges.
(12) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic debt of
the U.S. Government or any agency thereof, quasi-federal corporation, or
corporate debt guaranteed by the U.S. Government and all publicly issued,
fixed-rate, non-convertible, domestic debt of the three major corporate
classifications: industrial, utility, and financial. Only notes and bonds with a
minimum outstanding principal amount of $1,000,000 and a minimum of one year to
maturity are included. Bonds included must have a rating of at least Baa by
Moody's Investors Service, Inc., BBB by Standard & Poor's Corporation or in the
case of bank bonds not rated by either Moody's or S&P, BBB by Fitch Investors
Service. This index is unmanaged. Source is Towers Data Systems.
B-34
<PAGE> 92
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.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National IndexTM for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of a Fund, such as the Total
Return Fund, to the performance of a hypothetical portfolio weighted 60% in the
Standard & Poor's 500 Stock Index (an unmanaged index generally representative
of the U.S. stock market) and 40% in the Lehman Brothers Government/Corporate
Bond Index (an unmanaged index generally representative of intermediate and
long-term government and investment grade corporate debt securities). See the
footnotes above for a more complete description of these indexes. The Total
Return Fund may invest in both equity and fixed income securities. The
percentage of assets invested in each type of security will vary from time to
time in the discretion of the Fund's investment manager and will not necessarily
approximate the 60%/40% weighting of this hypothetical index.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
B-35
<PAGE> 93
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund (except the Aggressive Growth and Quantitative Funds, which
includes the current maximum sales charge of 5.75%, with income and capital gain
dividends reinvested in additional shares. Each table covers the period from
commencement of operations of the Fund to December 31, 1995.
BLUE CHIP FUND (11/23/87)
<TABLE>
<CAPTION>
------------DIVIDENDS------------ -------CUMULATIVE VALUE OF SHARES ACQUIRED-------
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1987 $ 0 $ 0 $ 9,519 $ 0 $ 0 $ 9,519
1988 339 0 8,545 342 0 8,887
1989 220 0 10,650 659 0 11,309
1990 134 0 10,776 806 0 11,582
1991 531 712 14,284 1,657 786 16,727
1992 185 0 13,949 1,810 768 16,527
1993 897 374 13,392 2,647 1,118 17,157
1994 269 27 12,472 2,733 1,068 16,273
1995 1,201 714 14,932 4,497 2,006 21,435
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GROWTH FUND (4/4/66)
<TABLE>
<CAPTION>
--------DIVIDENDS-------- -------CUMULATIVE VALUE OF SHARES ACQUIRED-------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1966 $ 0 $ 0 $ 8,920 $ 0 $ 0 $ 8,916
1967 75 954 13,165 77 984 14,220
1968 121 1,278 15,103 211 2,371 17,684
1969 242 836 12,897 410 2,862 16,168
1970 306 0 12,137 726 2,692 15,548
1971 313 652 13,794 1,143 3,757 18,692
1972 280 765 13,907 1,419 4,544 19,876
1973 322 0 11,089 1,471 3,622 16,174
1974 384 0 7,779 1,383 2,541 11,698
1975 368 0 10,809 2,295 3,530 16,626
1976 376 0 13,689 3,303 4,471 21,452
1977 383 0 13,757 3,715 4,495 21,963
1978 661 572 15,439 4,827 5,613 25,879
1979 852 3,998 18,775 6,772 10,900 36,439
1980 1,097 5,842 23,439 9,656 19,407 52,502
1981 1,053 2,201 19,253 8,955 18,257 46,465
1982 1,364 1,691 23,346 12,515 24,081 59,942
1983 4,257 5,471 25,476 17,849 31,659 74,984
1984 1,772 6,113 20,973 16,409 32,242 69,624
1985 2,313 8,923 22,822 20,376 45,166 88,364
1986 3,785 22,963 18,803 20,481 60,930 100,214
1987 12,643 22,692 13,065 26,916 65,975 105,956
1988 3,977 0 13,963 32,949 70,505 117,417
1989 2,844 0 17,907 45,201 90,420 153,528
1990 2,898 6,132 17,495 47,095 94,866 159,456
1991 7,496 5,963 27,552 82,490 156,017 266,059
1992 542 542 27,009 81,412 153,492 261,913
1993 1,631 16,494 25,552 78,674 161,958 266,184
1994 0 3,505 23,701 72,977 153,770 250,448
1995 8,987 24,887 27,981 95,333 206,954 330,268
- --------------------------------------------------------------------------------
</TABLE>
B-36
<PAGE> 94
- --------------------------------------------------------------------------------
SMALL CAP FUND (2/20/69)
<TABLE>
<CAPTION>
-----DIVIDENDS-------- -----CUMULATIVE VALUE OF SHARES ACQUIRED---------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1969 $ 94 $ 0 $ 9,179 $ 95 $ 0 $ 9,274
1970 172 0 8,924 275 0 9,199
1971 117 243 10,868 463 267 11,598
1972 121 634 10,925 583 890 12,398
1973 193 0 7,745 615 631 8,991
1974 197 0 4,953 585 403 5,941
1975 192 0 7,585 1,096 618 9,299
1976 162 0 9,915 1,605 808 12,328
1977 223 0 10,981 2,007 895 13,883
1978 358 1,527 11,548 2,469 2,471 16,488
1979 1,455 1,845 14,009 4,521 4,932 23,462
1980 1,770 1,232 18,670 7,745 7,771 34,186
1981 829 1,607 16,916 7,931 8,811 33,658
1982 657 1,201 20,472 10,389 12,108 42,969
1983 1,386 3,307 23,170 13,087 16,875 53,132
1984 1,082 0 20,934 12,916 15,247 49,097
1985 1,217 1,482 25,386 17,035 20,161 62,582
1986 581 11,279 24,104 16,782 30,928 71,814
1987 5,059 17,848 15,990 16,510 39,485 71,985
1988 1,062 0 16,982 18,656 41,931 77,569
1989 2,370 0 20,896 25,344 51,599 97,839
1990 1,325 6,405 18,019 23,288 51,425 92,732
1991 4,370 7,283 27,925 40,971 87,829 156,725
1992 0 12,972 25,613 37,580 93,726 156,919
1993 578 9,825 28,161 41,914 113,195 183,270
1994 0 10,437 25,566 38,053 113,583 177,202
1995 7,520 26,809 28,303 50,068 154,057 232,428
- ----------------------------------------------------------------------------------------
</TABLE>
B-37
<PAGE> 95
- --------------------------------------------------------------------------------
TECHNOLOGY FUND (9/7/48)
<TABLE>
<CAPTION>
------DIVIDENDS--------- --------CUMULATIVE VALUE OF SHARES ACQUIRED-----------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1948 $ 0 $ 0 $ 10,127 $ 0 $ 0 $ 10,127
1949 305 112 10,907 354 125 11,386
1950 618 510 12,490 1,046 659 14,195
1951 722 569 13,608 1,870 1,312 16,790
1952 700 303 15,158 2,854 1,779 19,791
1953 812 595 14,325 3,494 2,292 20,111
1954 962 1,308 22,406 6,656 5,050 34,112
1955 1,129 1,681 24,367 8,426 7,310 40,103
1956 1,286 1,973 24,873 9,890 9,466 44,229
1957 1,362 2,109 20,485 9,344 9,912 39,741
1958 1,356 1,883 29,557 15,178 16,404 61,139
1959 1,430 2,771 34,283 19,144 22,002 75,429
1960 1,591 3,018 32,615 19,858 24,191 76,664
1961 1,498 3,620 37,426 24,332 31,506 93,264
1962 1,482 2,766 29,367 20,530 27,753 77,650
1963 1,686 3,388 32,152 24,207 33,809 90,168
1964 2,026 3,949 34,220 27,804 39,936 101,960
1965 2,279 5,209 41,983 36,626 54,459 133,068
1966 2,421 7,556 36,878 34,531 56,060 127,469
1967 2,347 16,506 43,123 42,726 83,106 168,955
1968 2,661 29,453 38,354 40,541 104,411 183,306
1969 4,067 15,134 30,970 36,388 98,699 166,057
1970 4,576 2,306 29,156 39,278 95,450 163,884
1971 4,307 7,228 31,519 46,839 111,044 189,402
1972 3,573 9,256 32,320 51,550 123,411 207,281
1973 4,092 0 26,202 45,665 100,050 171,917
1974 5,036 0 19,704 38,853 75,239 133,796
1975 5,503 0 26,160 57,435 99,889 183,484
1976 5,671 0 31,983 76,277 122,122 230,382
1977 6,134 3,081 30,127 78,198 118,387 226,712
1978 8,346 6,127 34,852 99,253 143,347 277,452
1979 8,825 14,677 42,911 132,292 192,861 368,064
1980 11,331 22,789 59,831 198,060 293,649 551,540
1981 12,949 29,973 46,878 166,926 259,055 472,859
1982 15,945 18,664 53,122 207,300 312,576 572,998
1983 22,078 88,219 53,165 228,712 402,902 684,779
1984 18,122 67,505 44,050 206,394 401,017 651,461
1985 11,304 43,186 51,561 253,748 516,719 822,028
1986 11,483 185,857 46,920 240,583 653,079 940,582
1987 28,099 200,645 38,481 222,331 744,271 1,005,083
1988 25,656 56,631 36,414 236,256 763,523 1,036,193
1989 35,011 36,281 42,828 314,484 935,927 1,293,237
1990 25,588 29,491 41,138 327,604 930,196 1,298,939
1991 18,709 328,427 47,131 395,051 1,432,891 1,875,073
1992 0 216,548 41,055 344,122 1,467,648 1,852,825
1993 0 127,584 42,953 360,038 1,666,453 2,069,449
1994 0 304,928 41,308 346,245 1,916,846 2,304,399
1995 164,768 336,598 49,199 591,597 2,649,098 3,289,894
- ------------------------------------------------------------------------------------------------
</TABLE>
B-38
<PAGE> 96
- --------------------------------------------------------------------------------
TOTAL RETURN FUND (3/2/64)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1964 $ 286 $ 36 $ 9,775 $ 280 $ 35 $ 10,090
1965 485 75 10,249 788 113 11,150
1966 498 133 9,337 1,195 238 10,770
1967 528 533 10,367 1,854 821 13,042
1968 576 934 11,552 2,685 1,869 16,106
1969 705 186 9,608 2,880 1,734 14,222
1970 787 91 9,977 3,851 1,899 15,727
1971 798 308 10,806 4,991 2,382 18,179
1972 913 475 11,102 6,040 2,937 20,079
1973 1,095 0 9,502 6,202 2,514 18,218
1974 1,164 0 7,370 5,841 1,950 15,161
1975 1,251 0 9,324 8,721 2,467 20,512
1976 1,412 0 11,920 12,712 3,153 27,785
1977 1,580 689 11,517 13,873 3,777 29,167
1978 1,997 2,026 11,173 15,386 5,733 32,292
1979 2,493 3,239 12,547 19,958 9,982 42,487
1980 3,872 2,955 15,545 29,058 15,524 60,127
1981 2,893 2,272 14,278 29,458 16,532 60,268
1982 4,254 2,803 15,771 37,194 21,076 74,041
1983 8,825 3,719 16,256 47,149 25,542 88,947
1984 4,093 1,005 15,142 48,081 24,798 87,961
1985 5,472 2,977 17,891 62,603 32,510 113,004
1986 6,471 12,816 18,069 69,383 45,459 132,911
1987 5,213 3,478 16,564 67,975 45,219 129,758
1988 7,763 0 16,991 77,756 46,384 141,131
1989 7,619 0 19,432 96,645 53,047 169,124
1990 10,289 0 19,029 105,091 51,947 176,067
1991 8,001 6,055 24,999 146,974 74,795 246,768
1992 6,616 9,754 23,957 147,512 81,449 252,918
1993 10,120 22,863 23,578 155,228 103,420 282,226
1994 6,437 0 20,901 143,755 91,675 256,331
1995 12,811 11,545 24,265 179,922 118,210 322,467
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE+GROWTH FUND (10/16/95)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 0 $0 $ 10,030 $0 $0 $10,030
-----------------------------------------------------------------------------------------------
</TABLE>
* Includes short-term capital gain dividends.
B-39
<PAGE> 97
The following tables compare the performance of the Class A shares of the Funds
over various periods with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. Each category includes funds with a
variety of objectives, policies and market and credit risks that should be
considered in reviewing these rankings.
BLUE CHIP FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Growth & Income
Funds
------------------
<S> <C>
Five Year (Period ended 12/31/95)............................................. 161 of 192
One Year (Period ended 12/31/95).............................................. 207 of 438
</TABLE>
The Lipper Growth & Income Funds category includes funds which combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
GROWTH FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Growth Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/95)......................................... 56 of 109
Ten Years (Period ended 12/31/95)............................................. 50 of 153
Five Years (Period ended 12/31/95)............................................ 122 of 237
One Year (Period ended 12/31/95).............................................. 270 of 572
</TABLE>
The Lipper Growth Funds category includes funds which normally invest in
companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices.
SMALL CAP FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Small Cap Company
Growth Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/95)......................................... 3 of 12
Ten Years (Period ended 12/31/95)............................................. 16 of 37
Five Years (Period ended 12/31/95)............................................ 44 of 81
One Year (Period ended 12/31/95).............................................. 143 of 305
</TABLE>
The Lipper Mid Cap Company Growth Fund category includes funds which by
prospectus or portfolio practice limit their investments to companies on the
basis of the size of the company.
B-40
<PAGE> 98
TECHNOLOGY FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Science &
Technology Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/95)......................................... 2 of 3
Ten Years (Period ended 12/31/95)............................................. 8 of 13
Five Years (Period ended 12/31/95)............................................ 13 of 15
One Year (Period ended 12/31/95).............................................. 19 of 35
</TABLE>
The Lipper Science & Technology Funds category includes funds which invest 65%
of their equity portfolio in science and technology stocks.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Balanced Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/95)......................................... 22 of 24
Ten Years (Period ended 12/31/95)............................................. 17 of 31
Five Years (Period ended 12/31/95)............................................ 33 of 61
One Year (Period ended 12/31/95).............................................. 98 of 220
</TABLE>
The Lipper Balanced Fund category includes funds whose primary objectives are to
conserve principal by maintaining at all times a balanced portfolio of both
stock and bonds. Typically, the stock/bond ratio ranges around 60% to 40%.
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with ZKI, the investment manager,
DVA, the sub-adviser, and KDI, the principal underwriter, are as follows (The
number following each person's title is the number of investment companies
managed by ZKI and its affiliates for which he or she holds similar positions.):
ALL FUNDS [EXCEPT AGGRESSIVE GROWTH FUND]:
DAVID W. BELIN (6/20/28), Trustee (25), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee (25), 16410 Avila Boulevard, Tampa, Florida;
Director, Management Consulting Services, McNulty & Company; formerly, Executive
Vice President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee (25), 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee (25), 800 North Lindbergh Boulevard, St.
Louis, Missouri; Senior Vice President and Chief Financial Officer, Monsanto
Company (chemical products); prior thereto, Vice President, FMC Corporation
(manufacturer of machinery and chemicals); prior thereto, Director, Executive
Vice President and Chief Financial Officer, Staley Continental, Inc. (food
products).
DONALD R. JONES (1/17/30), Trustee (25), 23 Flagship Lane, Hilton Head, South
Carolina; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
B-41
<PAGE> 99
DOMINIQUE P. MORAX (10/02/48), Trustee* (38), 222 S. Riverside Plaza, Chicago,
Illinois; Member, Extended Corporate Executive Board, Zurich Insurance Company,
Director, ZKI.
SHIRLEY D. PETERSON (9/3/41), Trustee (25), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College; prior thereto, partner, Steptoe & Johnson
(attorneys); prior thereto, Commissioner, Internal Revenue Service; prior
thereto, Assistant Attorney General, U.S. Department of Justice.
WILLIAM P. SOMMERS (7/22/33), Trustee (25), 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider), prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (38), 222 S. Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, KDI, DVA and LTV Corporation.
JOHN E. NEAL (3/9/50), Vice President* (38), 222 S. Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, DVA and
KDI.
CHARLES R. MANZONI, JR. (1/23/47), Vice President* (38), 222 S. Riverside Plaza,
Chicago, Illinois; Executive Vice President, Secretary and General Counsel of
ZKI; Secretary, ZKI Holding Corp.; Secretary, ZKI Agency, Inc.; formerly,
Partner, Gardner, Carton & Douglas (attorneys).
STEVEN H. REYNOLDS (9/11/43), Vice President* (12), 222 S. Riverside Plaza,
Chicago, Illinois; Executive Vice President and Chief Investment
Officer -- Equities, ZKI.
CHARLES F. CUSTER (8/19/28), Vice President and Assistant Secretary* (38), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.
JEROME L. DUFFY (6/29/36), Treasurer* (38), 222 S. Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (38), 222 S.
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (30), 222 S. Riverside Plaza,
Chicago, Illinois; Vice President, ZKI; Vice President and Director of State
Registrations, KDI.
AGGRESSIVE GROWTH FUND:
BLUE CHIP FUND:
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 222 S. Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI; formerly, Portfolio Manager for
Fiduciary Management; prior thereto, independent consultant managing private
accounts.
GROWTH FUND:
PATRICK S. ADAMS (10/3/60), Vice President* (2), 222 S. Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI; formerly, portfolio manager with
an unaffiliated investment management firm.
B-42
<PAGE> 100
QUANTITATIVE FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President* (2), 222 S. Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.
TECHNOLOGY FUND:
FRANK D. KORTH (7/11/45), Vice President* (1), 222 S. Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.; formerly, President, Value Line Fund.
TOTAL RETURN FUND:
GARY A. LANGBAUM (12/16/48), Vice President* (2), 222 S. Riverside Plaza,
Chicago, Illinois; Executive Vice President, ZKI.
VALUE+GROWTH FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President* (2), 222 S. Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.
* Interested persons of the Fund as defined in the Investment Company Act of
1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds, except that Mr. Custer's law firm
receives fees from the Funds as counsel to the Funds. The table below shows
amounts paid or accrued to those trustees who are not designated "interested
persons" during each Fund's 1996 fiscal year except that the information in the
last column is for calendar year 1995. The Aggressive Growth Fund has not yet
adopted a trustee compensation schedule.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM FUND FROM FUND AND
--------------------------------------------------------- KEMPER FUND
BLUE SMALL TOTAL VALUE+ COMPLEX
NAME OF TRUSTEE CHIP GROWTH QUANTITATIVE CAP TECH RETURN GROWTH PAID TO TRUSTEES**
- ---------------------------------------- ------ ------ ------------ ------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Belin*......................... $ $ $ $ $ $149,700
Lewis A. Burnham........................ $ $ $ $ $ $111,000
Donald L. Dunaway*...................... $ $ $ $ $ $151,000
Robert B. Hoffman....................... $ $ $ $ $ $105,500
Donald R. Jones......................... $ $ $ $ $ $110,700
Shirley D. Peterson***.................. $ $ $ $ $ $ 44,500
William P. Sommers...................... $ $ $ $ $ $100,700
</TABLE>
- ---------------
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds -- Kemper Money
Market Fund.
** Includes compensation for service on the boards of twenty-three Kemper funds
with fund portfolios. Each trustee currently serves as a trustee of
Kemper funds with fund portfolios.
*** Appointed a trustee on June 15, 1995.
B-43
<PAGE> 101
As of , 1996, the officers and trustees of the Funds, 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, except the persons indicated in the chart below and ZKI owned all the
shares of the Aggressive Growth Fund.
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ---------------- ------- ------------ -----
<S> <C> <C> <C>
</TABLE>
B-44
<PAGE> 102
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ---------------- ------- ------------ -----
<S> <C> <C> <C>
</TABLE>
B-45
<PAGE> 103
SHAREHOLDER RIGHTS
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("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 Investment Company Act of 1940 ("1940 Act"); (c) any
termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (e) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Fund, or any registration of the
Fund with the 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.
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) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
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.
Each Fund'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 a Fund and certain amendments of the
Declaration of Trust, would not be affected by this 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.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio 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 ZKI 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.
B-46
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Aggressive Growth Fund
We have audited the accompanying statement of net assets of Kemper Aggressive
Growth Fund as of , 1996. This statement of net assets is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper Aggressive Growth
Fund at , 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
, 1996
B-47
<PAGE> 105
KEMPER AGGRESSIVE GROWTH FUND
STATEMENT OF NET ASSETS-- , 1996
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $100,000
=========
NET ASSETS
Net assets, applicable to shares of beneficial interest (unlimited number of shares
authorized, no par value) outstanding as follows:
Class A--3,473.684
Class B--3,473.684
Class C--3,578.947.................................................................. $100,000
=========
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($33,000 / 3,473.684 shares outstanding).................................... $ 9.50
Class B* ($33,000 / 3,473.684 shares outstanding)................................... $ 9.50
Class C ($34,000 / 3,578.947 shares outstanding).................................... $ 9.50
Maximum offering price per share
Class A (net asset value, plus 6.10% of net asset value or 5.75% of offering
price)........................................................................... $ 10.08
Class B (net asset value)........................................................... $ 9.50
Class C (net asset value)........................................................... $ 9.50
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
Kemper Aggressive Growth Fund (the "Trust"), was organized as a business trust
under the laws of The Commonwealth of Massachusetts on ,
1996. All Class A, Class B and Class C shares of beneficial interest of the
Trust were issued to Zurich Kemper Investments, Inc. ("ZKI"), the investment
manager for the Trust, on , 1996. The Trust may establish
multiple series; currently one series has been established.
The costs of organization of the Fund will be paid by ZKI.
B-48
<PAGE> 106
APPENDIX--RATINGS OF FIXED INCOME INVESTMENTS
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-49
<PAGE> 107
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
B-50
<PAGE> 108
KEMPER AGGRESSIVE GROWTH FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement: None.
(ii) Financial statements included in Part B of the Registration
Statement:
Statement of Net Assets.*
Report of Independent Auditors.*
Schedules I, II, III, IV and V are omitted as the required information
is not present.
(b) Exhibits
<TABLE>
<S> <C>
99.B.1 (a) Agreement and Declaration of Trust.
99.B.1 (b) Written Instrument Amending the Agreement and Declaration of Trust.
99.B.2. By-Laws.*
99.B.3. Inapplicable.
99.B.4. (a) Text of Share Certificate.*
99.B.4. (b) Written Instrument Establishing and Designating Separate Classes of
Shares.*
99.B.5. Investment Management Agreement.*
99.B.6. (a) Underwriting and Distribution Services Agreement.*
99.B.6. (b) Form of Selling Group Agreement.*
99.B.7. Inapplicable.
99.B.8. (a) Custody Agreement.*
99.B.8. (b) Foreign Custody Agreement.*
99.B.9. (a) Agency Agreement.*
99.B.9. (b) Administrative Services Agreement.*
99.B.10.(a) Legal Opinion and Consent of Vedder, Price, Kaufman & Kammholz.*
99.B.10.(b) Legal Opinion and Consent of Ropes & Gray.*
99.B.11. Report and Consent of Independent Auditors.*
99.B.12. Inapplicable.
99.B.13. Subscription Agreement.*
99.B.14.(a) Kemper Retirement Plan Prototype.*
99.B.14.(b) Model Individual Retirement Account.*
99.B.15. See 6(a) above (Class B and Class C shares).
99.B.16. Inapplicable.
99.B.18. Multi-Distribution System Plan.*
27. Inapplicable.
</TABLE>
* To be filed before the effective date of the Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of October 7, 1996, there was no holder of record of any class of shares
of Registrant.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust
C-1
<PAGE> 109
does not protect any person against any liability to the Registrant or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions 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.
C-2
<PAGE> 110
ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Managers" and "Distributor"
and to the section of the Statement of Additional Information
captioned "Investment Managers and Distributor."
Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
C-3
<PAGE> 111
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Advisor
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group
C-4
<PAGE> 112
MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.
C-5
<PAGE> 113
Executive Vice President, Zurich Investment Management, Inc.
FERRO, DENNIS H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director-Equities, Zurich Investment
Management Limited
Vice President, Kemper International Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
JOHNS, GORDON K.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director, Zurich Investment Management Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
C-6
<PAGE> 114
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.
BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund
BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.
CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.
CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund
CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company
COLLECCHIA, FRANK E.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
Senior Investment Officer, Federal Kemper Life Assurance
Company
Senior Investment Officer, Fidelity Life Association
Vice President, Galaxy Offshore, Inc.
Senior Investment Officer, Kemper Investors Life Insurance
Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
C-7
<PAGE> 115
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.
KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
C-8
<PAGE> 116
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.
SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.
SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.
C-9
<PAGE> 117
THOUIN-LEERKAMP, EDITH A.
Senior Vice President, Zurich Kemper Investments, Inc.
Director-European Equities, Zurich Investment Management Limited
Vice President, Kemper Europe Fund
VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund
VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.
DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
C-10
<PAGE> 118
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
FENGER, JAMES E.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.
INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.
KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Portfolios
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.
MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.
MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
C-11
<PAGE> 119
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.
WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.
ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.
ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.
BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.
BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.
C-12
<PAGE> 120
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.
CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.
GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.
GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.
GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, ZKI Agency, Inc.
C-13
<PAGE> 121
HUM, CHI H.
Vice President, Zurich Kemper Investments, Inc.
HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.
JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.
KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.
KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.
KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.
KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.
KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.
KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
C-14
<PAGE> 122
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.
NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.
NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.
NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.
PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.
PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
Vice President, Zurich Kemper Investments, Inc.
QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.
RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.
ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.
RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.
ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
SMITH, ROBERT G.
Vice President, Zurich Kemper Investments, Inc.
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
C-15
<PAGE> 123
SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.
SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.
STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds
WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.
WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.
C-16
<PAGE> 124
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman
Fund, Inc.
(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>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director None
Stephen B. Timbers Director President
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Thomas V. Bruns Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-17
<PAGE> 125
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Zurich Kemper
Investments, Inc. and Kemper Distributors, Inc., the Registrant's principal
underwriter, 222 S. Riverside Plaza, Chicago, Illinois 60606 or at the offices
of the custodian and transfer agent, Investors Fiduciary Trust Company, 127 West
10th Street, Kansas City, Missouri 64105 or at the offices of the shareholder
service agent, Kemper Service Company, 811 Main Street, Kansas City, Missouri
64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a Post-Effective Amendment using
financial statements of Registrant, which need not be certified, within four to
six months from the effective date of the Registration Statement.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-18
<PAGE> 126
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and
State of Illinois, on the 7th day of October, 1996.
KEMPER AGGRESSIVE GROWTH FUND
By /s/ Stephen B. Timbers
---------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on October 7,
1996 on behalf of the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President (Principal
------------------------------------- Executive Officer)
Stephen B. Timbers
/s/ Philip J. Collora Trustee
-------------------------------------
Philip J. Collora
/s/ Jerome L. Duffy
------------------------------------- Treasurer (Principal
Jerome L. Duffy Financial and
Accounting Officer)
<PAGE> 127
KEMPER AGGRESSIVE GROWTH FUND
INDEX TO EXHIBITS
(b) Exhibits
<TABLE>
<S> <C>
99.B.1 (a) Agreement and Declaration of Trust.
99.B.1 (b) Written Instrument Amending the Agreement and Declaration of Trust.
99.B.2. By-Laws.*
99.B.3. Inapplicable.
99.B.4. (a) Text of Share Certificate.*
99.B.4. (b) Written Instrument Establishing and Designating Separate Classes of
Shares.*
99.B.5. Investment Management Agreement.*
99.B.6. (a) Underwriting and Distribution Services Agreement.*
99.B.6. (b) Form of Selling Group Agreement.*
99.B.7. Inapplicable.
99.B.8. (a) Custody Agreement.*
99.B.8. (b) Foreign Custody Agreement.*
99.B.9. (a) Agency Agreement.*
99.B.9. (b) Administrative Services Agreement.*
99.B.10.(a) Legal Opinion and Consent of Vedder, Price, Kaufman & Kammholz.*
99.B.10.(b) Legal Opinion and Consent of Ropes & Gray.*
99.B.11. Report and Consent of Independent Auditors.*
99.B.12. Inapplicable.
99.B.13. Subscription Agreement.*
99.B.14.(a) Kemper Retirement Plan Prototype.*
99.B.14.(b) Model Individual Retirement Account.*
99.B.15. See 6(a) above (Class B and Class C shares).
99.B.16. Inapplicable.
99.B.18. Multi-Distribution System Plan.*
27. Inapplicable.
</TABLE>
* To be filed before the effective date of the Registration Statement.
<PAGE> 1
KEMPER TRUST #27
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
3rd day of October, 1996, by the Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS, the Trustees hereunder are desirous of forming a trust for the
purposes of carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purposes, the Trustees are acquiring and
may hereafter acquire assets and properties, to hold and manage as trustees of
a Massachusetts voluntary association with transferable shares in accordance
with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets and properties which they may from time to
time acquire in any manner as Trustees hereunder IN TRUST to manage and
dispose of the same upon the following terms and conditions for the pro rata
benefit of the holders from time to time of shares in this Trust as
hereinafter set forth.
ARTICLE I
Name and Definitions
Name and Registered Agent
Section 1. This Trust shall be known as Kemper Trust #27 and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine. The registered agent for the
Trust in Massachusetts shall be CT Corporation System whose address is 2
Oliver Street, Boston, Massachusetts or such other person as the Trustees may
from time to time designate.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
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(a) The "Trust" refers to the Massachusetts voluntary association
established by this Agreement and Declaration of Trust, as amended from time
to time, pursuant to Massachusetts General Laws, Chapter 182;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV and then in office;
(c) "Shares" mean the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series or class of shares is authorized
under or pursuant to Article III, the equal proportionate transferable units
of interest into which each such series or class shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the Rules and Regulations thereunder, all as
amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "vote of a majority of the
outstanding voting securities" shall have the meanings given them in the 1940
Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time;
(i) "Net asset value" shall have the meaning set forth in Section 6 of
Article VI hereof;
(j) The terms "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust authorized under or pursuant to
Article III into which the assets and liabilities of the Trust may be divided
and the Shares of the Trust representing the beneficial interest of
Shareholders in such respective portfolios; and
(k) The terms "class" or "class of Shares" refers to the division of
Shares representing any series into two or more classes authorized under or
pursuant to Article III.
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ARTICLE II
Nature and Purpose
The Trust is a voluntary association (commonly known as a business
trust) of the type referred to in Chapter 182 of the General Laws of the
Commonwealth of Massachusetts. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general or a limited partnership,
joint venture, corporation or joint stock company, nor shall the Trustees or
Shareholders or any of them for any purpose be deemed to be, or be treated in
any way whatsoever as though they were, liable or responsible hereunder as
partners or joint venturers. The purpose of the Trust is to engage in,
operate and carry on the business of an open-end management investment company
and to do any and all acts or things as are necessary, convenient,
appropriate, incidental or customary in connection therewith.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without Shareholder approval, authorize from time
to time. Each series shall be preferred over all other series in respect of
the assets allocated to that series as hereinafter provided. The beneficial
interest in each series shall at all times be divided into Shares (without par
value) of such series, each of which shall, except as provided in the
following sentence, represent an equal proportionate interest in such series
with each other Share of the same series, none having priority or preference
over another Share of the same series. The Trustees may, without Shareholder
approval, divide the Shares of any series into two or more classes, Shares of
each such class having such preferences and special or relative rights or
privileges (including conversion rights, if any) as the Trustees may
determine. The number of Shares authorized shall be unlimited, and the Shares
so authorized may be represented in part by fractional Shares. The Trustees
may from time to time divide or combine the shares of any series or class into
a greater or lesser number without thereby changing the proportionate
beneficial interests in the series or class. Without limiting the authority
of the Trustees set forth in this Section 1 to establish and designate any
further series or class, the Trustees hereby establish and designate one
series of Shares to be known as the "Initial Portfolio." The establishment
and designation of any series or class of Shares in addition to the foregoing
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and
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preferences of such series or class. As provided in Article IX, Section 1
hereof, any series or class of Shares (whether or not there shall then be
Shares outstanding of said series or class) may be terminated by the Trustees
by written notice to the Shareholders of such series or class or by the vote
of the Shareholders of such series or class entitled to vote more than fifty
percent (50%) of the votes entitled to be cast on the matter. In the event of
any such termination, a majority of the then Trustees shall execute an
instrument setting forth the termination of such series or class.
Ownership of Shares
Section 2. The ownership and transfer of Shares shall be recorded on
the books of the Trust or its transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as
they consider appropriate for the issuance of Share certificates, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent of the Trust, as the case may be, shall
be conclusive as to who are the Shareholders of each series or class and as to
the number of Shares of each series or class held from time to time by each
Shareholder.
Investment in the Trust; Assets of a Series
Section 3. The Trustees may issue Shares of the Trust to such persons
and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or
a combination thereof, as they may from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares
of a particular series, together with all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall, irrevocably belong
to such series of Shares for all purposes, subject only to the rights of
creditors, and shall be so handled upon the books of account of the Trust and
are herein referred to as "assets of" such series. Any allocation of the
assets of a series among any classes of Shares of such series shall be made in
a manner consistent with the preferences and special or relative rights or
privileges of such classes.
Right to Refuse Orders
Section 4. The Trust by action of its Trustees shall have the right to
refuse to accept any subscription for its Shares at
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any time without any cause or reason therefore whatsoever. Without limiting
the foregoing, the Trust shall have the right not to accept subscriptions
under circumstances or in amounts as the Trustees in their sole discretion
consider to be disadvantageous to existing Shareholders and the Trust may from
time to time set minimum and/or maximum amounts which may be invested in
Shares by a subscriber.
Order in Proper Form
Section 5. The criteria for determining what constitutes an order in
proper form and the time of receipt of such an order by the Trust shall be
prescribed by resolution of the Trustees.
When Shares Become Outstanding
Section 6. Shares subscribed for and for which an order in proper form
has been received shall be deemed to be outstanding as of the time of
acceptance of the order therefor and the determination of the net price
thereof, which price shall be then deemed to be an asset of the Trust.
Merger or Consolidation
Section 7. In connection with the acquisition of all or substantially
all the assets or stock of another investment company, investment trust, or of
a company classified as a personal holding company under Federal Income Tax
laws, the Trustees may issue or cause to be issued Shares of a series or class
and accept in payment therefor, in lieu of cash, such assets at their market
value, or such stock at the market value of the assets held by such investment
company or investment trust, either with or without adjustment for contingent
costs or liabilities. No Preemptive Rights, Etc.
Section 8. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust. The Shareholders shall have no appraisal rights with
respect to their Shares and, except as otherwise determined by the Trustees in
their sole discretion, shall have no exchange or conversion rights with
respect to their Shares.
Status of Shares and Limitation of Personal Liability
Section 9. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to
the terms of the Declaration of Trust and to have become a party thereto. The
death of a Shareholder during the continuance of the Trust shall
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not operate to terminate the same nor entitle the representative of any
deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property
or right to call for a partition or division of the same or for an accounting,
nor shall the ownership of Shares constitute the Shareholders partners.
Neither the Trust nor the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind personally any Shareholder, nor except as
specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
Shareholder Inspection Rights
Section 10. Any Shareholder or his agent may inspect and copy during
normal business hours any of the following documents of the Trust: By-Laws,
minutes of the proceedings of the Shareholders and annual financial statements
of the Trust, including a balance sheet and financial statements of
operations. The foregoing rights of inspection of Shareholders of the Trust
are the exclusive and sole rights of the Shareholders with respect thereto and
no Shareholder of the Trust shall have, as a Shareholder, the right to inspect
or copy any of the books, records or other documents of the Trust except as
specifically provided in this Section 10 of this Article III or except as
otherwise determined by the Trustees.
ARTICLE IV
The Trustees
Number, Designation, Election, Term, Etc.
Section 1.
(a) Initial Trustee. Upon his execution of this Declaration of Trust
or a counterpart hereof or some other writing in which he accepts such
Trusteeship and agrees to the provisions hereof, John Kingston III shall
become a Trustee hereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase or decrease the number of Trustees
to a number other than the number theretofore determined which number shall
not be less than three nor more than fifteen except during the period prior to
any sale of Shares pursuant to any public offering. No decrease in the number
of Trustees shall have the effect of removing any Trustee from office prior to
the expiration of his term, but the number
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of Trustees may be decreased in conjunction with the removal of a Trustee
pursuant to subsection (e) of this Section 1.
(c) Term and Election. Each Trustee, whether named above or hereafter
becoming a Trustee, shall serve as a Trustee until the next meeting of
Shareholders, if any, called for the purpose of considering the election or
re-election of such Trustee or of a successor to such Trustee, and until the
election and qualification of his successor, if any, elected at such meeting,
or until such Trustee sooner dies, resigns, retires or is removed. Upon the
election and qualification of a new Trustee, the Trust estate shall vest in
the new Trustee (together with the continuing or other new Trustees) without
any further act or conveyance. Prior to any sale of Shares pursuant to any
public offering, the initial Trustee named above (and any individual appointed
by such initial Trustee to act as sole Trustee) shall have the right to
appoint other persons as Trustees each to serve as Trustees as aforesaid until
the first meeting of Shareholders called for the purpose of the election or
re-election of such Trustee or of a successor to such Trustee.
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by written instrument signed by him and delivered to the
other Trustees or to the Chairman of the Board, if any, the President or the
Secretary of the Trust, and such resignation or retirement shall take effect
upon such delivery or upon such later date as is specified in such instrument.
(e) Removal. Any Trustee may be removed for cause at any time by
written instrument, signed by at least a majority of the number of Trustees
prior to such removal, specifying the date upon which such removal shall
become effective. Any Trustee may be removed with or without cause (i) by the
vote of the Shareholders entitled to vote more than fifty percent (50%) of the
votes entitled to be cast on the matter voting together without regard to
series or class at any meeting called for such purpose, or (ii) by a written
consent filed with the custodian of the Trust's portfolio securities and
executed by the Shareholders entitled to vote more than fifty percent (50%) of
the votes entitled to be cast on the matter voting together without regard to
series or class.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares constituting at least one percent of the outstanding Shares
of the Trust, shall apply to the Trustees in writing, stating that they wish
to communicate with other Shareholders with a view to obtaining signatures to
a request for a meeting to consider removal of a Trustee and accompanied by a
form of communication and request that they wish to transmit, the Trustees
shall within five business days after
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receipt of such application inform such applicants as to the approximate cost
of mailing to the Shareholders of record the proposed communication and form
of request. Upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
the Trustees shall, within reasonable promptness, mail such material to all
Shareholders of record at their addresses as recorded on the books of the
Trust. Notwithstanding the foregoing, the Trustees may refuse to mail such
material on the basis and in accordance with the procedures set forth in the
last two paragraphs of Section 16(c) of the 1940 Act.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees by the other Trustees may (but so long as there are at
least three remaining Trustees at all times subsequent to any sale of Shares
pursuant to any public offering, need not unless required by the 1940 Act) be
filled either by a majority of the remaining Trustees, even if less than a
quorum, through the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine or, whenever deemed
appropriate by the remaining Trustees, by the election by the Shareholders, at
a meeting called for such purpose, of a person to fill such vacancy. Upon the
appointment or election and qualification of a new Trustee as aforesaid, the
Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance, except that any such
appointment or election in anticipation of a vacancy to occur by reason of
retirement, resignation, or increase in number of Trustees to be effective at
a later date shall become effective only at or after the effective date of
said retirement, resignation, or increase in number of Trustees.
(g) Mandatory Election by Shareholders. Notwithstanding the foregoing
provisions of this Section 1, the Trustees shall call a meeting of the
Shareholders for the election of one or more Trustees at such time or times as
may be required in order that the provisions of the 1940 Act may be complied
with, and the authority hereinabove provided for the Trustees to appoint any
successor Trustee or Trustees shall be restricted if such appointment would
result in failure of the Trust to comply with any provision of the 1940 Act.
(h) Effect of Death, Resignation, Etc. The death, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall
not operate to annul or terminate the Trust or to revoke or terminate any
existing agency or contract created or entered into pursuant to the terms of
this Declaration of Trust.
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(i) No Accounting. Except under circumstances which would justify his
removal for cause, no person ceasing to be a Trustee as a result of his death,
resignation, retirement, removal or incapacity (nor the estate of any such
person) shall be required to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
Powers
Section 2. The Trustees, subject only to the specific limitations
contained in this Declaration of Trust or otherwise imposed by the 1940 Act or
other applicable law, shall have, without further or other authorization and
free from any power or control of the Shareholders, full, absolute and
exclusive power, control and authority over the Trust assets and the business
and affairs of the Trust to the same extent as if the Trustees were the sole
and absolute owners thereof in their own right and to do all such acts and
things as in their sole judgment and discretion are necessary and incidental
to, or desirable for the carrying out of any of the purposes of the Trust or
conducting the business of the Trust. Any determination made in good faith by
the Trustees of the purposes of the Trust or the existence of any power or
authority hereunder shall be conclusive. In construing the provisions of this
Declaration of Trust, there shall be a presumption in favor of the grant of
power and authority to the Trustees. Without limiting the foregoing, the
Trustees may adopt By-Laws not inconsistent with this Declaration of Trust
containing provisions relating to the business of the Trust, the conduct of
its affairs, its rights or powers and the rights or powers of its
Shareholders, Trustees, officers, employees and other agents and may amend and
repeal them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in their number, including vacancies resulting
from increases in their number, unless a vote of the Trust's Shareholders is
required to fill such vacancies pursuant to the 1940 Act; elect and remove
such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number, and terminate, any one or more
committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or
all of the powers and authority of the Trustees as the Trustees may determine;
appoint an advisory board, the members of which shall not be Trustees and need
not be Shareholders; employ one or more investment advisers or managers as
provided in Section 6 of this Article IV; employ one or more custodians of the
assets of the Trust and authorize such custodians to employ subcustodians and
to deposit all or any part of such assets in a system or systems for the
central handling of securities; retain a transfer agent or a Shareholder
services agent, or both; provide for the distribution of Shares by the Trust,
through one or more principal underwriters or otherwise; set record dates for
the determination of Shareholders with
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respect to various matters; and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian or
underwriter.
In furtherance of and not in limitation of the foregoing, the Trustees
shall have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire, to hold,
for investment or otherwise, to sell or otherwise dispose of, to lend or to
pledge, to trade in or deal in securities or interests of all kinds, however
evidenced, or obligations of all kinds, however evidenced, or rights,
warrants, or contracts to acquire such securities, interests, or obligations,
of any private or public company, corporation, association, general or limited
partnership, trust or other enterprise or organization, foreign or domestic,
or issued or guaranteed by any national or state government, foreign or
domestic, or their agencies, instrumentalities or subdivisions (including but
not limited to, bonds, debentures, bills, time notes and all other evidences
of indebtedness); negotiable or non-negotiable instruments; any and all
futures contracts; government securities and money market instruments
(including but not limited to, bank certificates of deposit, finance paper,
commercial paper, bankers acceptances, and all kinds of repurchase
agreements);
(b) To invest and reinvest in, to buy or otherwise acquire, to hold,
for investment or otherwise, to sell or otherwise dispose of foreign
currencies, and funds and exchanges, and make deposits in banks, savings
banks, trust companies, and savings and loan associations, foreign or
domestic;
(c) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop, and dispose of (by sale or otherwise) any property, real or
personal, and any interest therein;
(d) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
(e) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(f) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
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(g) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or otherwise;
(h) Subject to the provisions of Article III, to allocate assets,
liabilities, income and expenses of the Trust to a particular series of Shares
or to apportion the same among two or more series, provided that any
liabilities or expenses incurred by a particular series shall be payable
solely out of the assets of that series; and to the extent necessary or
appropriate to give effect to the preferences and special or relative rights
or privileges of any classes of Shares, to allocate assets, liabilities,
income and expenses of a series to a particular class of Shares of that series
or to apportion the same among two or more classes of Shares of that series;
(i) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or property
of which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer, and to
pay calls or subscriptions with respect to any security held in the Trust;
(j) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall
deem proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall
deem proper;
(k) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(l) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(m) To borrow funds;
(n) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(o) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the
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conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters, or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or manager,
principal underwriter, or independent contractor, including any action taken
or omitted that may be determined to constitute negligence, whether or not the
Trust would have the power to indemnify such person against such liability;
and
(p) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life
insurance and annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers, employees and agents
of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees of common law
trusts. Except as otherwise provided herein or from time to time in the By-
Laws, any action to be taken by the Trustees may be taken by a majority of the
Trustees present at a meeting of Trustees (if a quorum by present), within or
without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can communicate with each other simultaneously
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office.
Payment of Expenses, Allocation of Liabilities
Section 3. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes
and liabilities incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent, shareholder
servicing agent, and such other agents or independent contractors and such
other expenses and charges as the Trustees may deem necessary or proper to
incur.
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The assets of a particular series of Shares shall be charged with the
liabilities (including, in the discretion of the Trustees or their delegate,
accrued expenses and reserves) incurred in respect of such series (but not
with liabilities incurred in respect of any other series) and such series
shall also be charged with its share of any other liabilities. Any allocation
of the liabilities of a series among classes of Shares of that series shall be
done in a manner consistent with the preferences and special or relative
rights or privileges of such classes. The determination of the Trustees shall
be final and conclusive as to the amount of liabilities to be charged to one
or more particular series or class. The Trustees may delegate from time to
time the power to make such allocation to one or more Trustees or to an agent
of the Trust appointed for such purpose. The liabilities with which a series
is so charged are herein referred to as the "liabilities of" such series.
Section 4. The Trustees shall have the power, as frequently as they
may determine, to cause each Shareholder to pay directly, in advance or
arrears, for charges for the Trust's custodian or transfer or shareholder
service or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of the Trust
and of the Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable vote of a majority of the
outstanding voting securities of a series of the Trust, the Trustees may on
behalf of such series, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services for such series
with a corporation, trust, association or other organization, every such
contract to comply with such requirements and restrictions as may be set forth
in the By-Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and restrictions as the
Trustees may determine, including, without limitation, authority to determine
from time to time what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of such series shall be held
uninvested and to make changes in such series' investments. The Trustees may
also, at any time and from time to time, contract with a corporation, trust,
association or other organization,
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appointing it exclusive or nonexclusive distributor or principal underwriter
for the Shares, every such contract to comply with such requirements and
restrictions as may be set forth in the By- Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements
and restrictions as the Trustees may determine.
The fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager, advisor,
principal underwriter, or distributor or agent of or for any corporation,
trust, association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or management or
principal underwriter's or distributor's contract, or transfer, shareholder
services or other agency contract may have been or may hereafter be made, or
that any such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(b) any corporation, trust, association or other organization with
which an advisory or management or principal underwriter's or distributor's
contract, or transfer, shareholder services or other agency contract may have
been or may hereafter be made also has an advisory or management contract, or
principal underwriter's or distributor's contract, or transfer, shareholder
services or other agency contract with one or more other corporations,
trusts, associations, or other organizations, or has other businesses or
interests shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its
Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting provisions of one or more classes
of Shares, the Shareholders shall have power to vote only: (a) for the
election or removal of Trustees as provided in Article IV, Section 1; (b) with
respect to any investment adviser or manager as provided in Article IV,
Section 6; (c) with respect to any termination or reorganization of the Trust
or any series or class thereof to the extent and as provided in Article IX,
Section 1; (d) with respect to any amendment of this Declaration of Trust to
the extent and as provided in Article IX, Section 4; and (e) with respect to
such additional matters relating to the Trust as may be required by law, the
1940 Act, this Declaration of Trust, the By-Laws or any registration of the
Trust with the
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Securities and Exchange Commission (or any successor agency) or any state, or
as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provision of the
Declaration of Trust, on any matter submitted to a vote of Shareholders all
Shares of the Trust then entitled to vote shall, except to the extent
otherwise required or permitted by the preferences and special or relative
rights or privileges of any classes of Shares, be voted by individual series
and not in the aggregate or by class, except (a) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual series; and
(b) when the Trustees have determined that the matter affects only the
interests of one or more series or classes, then only Shareholders of such
series or class shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person
or by proxy.
A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the
challenger.
Until Shares of any series or class are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by Shareholders of such
series or class.
Shareholder Meetings
Section 2. Meetings of Shareholders (including meetings involving
only one or more but less than all series or classes) may be called and held
from time to time for the purpose of taking action upon any matter requiring
the vote or authority of the Shareholders as herein provided or upon any other
matter deemed by the Trustees to be necessary or desirable. Such meetings
shall be held at the principal office of the Trust as set forth in the By-Laws
of the Trust or at any such other place within the United States as may be
designated in the call thereof, which call shall be made by the Trustees or
the President of the Trust. Meetings of Shareholders may be called by the
Trustees or such other person or persons as may be specified in the By-Laws
upon written application by Shareholders holding at least twenty-five percent
(25%) (or ten percent (10%) if the purpose of the meeting is to determine if a
Trustee is to be removed from
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office) of the Shares then outstanding of all series and classes entitled to
vote at such meeting requesting a meeting be called for a purpose requiring
action by the Shareholders as provided herein or in the By-Laws which purpose
shall be specified in any such written application.
Shareholders shall be entitled to at least seven days' written notice of
any meeting of the Shareholders.
Quorum and Required Vote
Section 3. The presence at a meeting of Shareholders in person or by
proxy of Shareholders entitled to vote at least thirty percent (30%) of all
votes entitled to be cast at the meeting of each series or class entitled to
vote as a series or class shall be a quorum for the transaction of business at
a Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust permits or requires that the holders of Shares shall vote
in the aggregate and not as a series or class, then the presence in person or
by proxy of Shareholders entitled to vote at least thirty percent (30%) of all
votes entitled to be cast at the meeting (without regard to series or class)
shall constitute a quorum. Any lesser number, however, shall be sufficient
for adjournments. Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting without the
necessity of further notice.
Except when a larger vote is required by any provisions of the 1940 Act,
this Declaration of Trust or the By-Laws, a majority of the Shares of each
series or class voted on the matter shall decide that matter insofar as that
series or class is concerned, provided that where any provision of law, this
Declaration of Trust or the By-Laws permits or requires that the holders of
Shares vote in the aggregate and not as a series or class, then a majority of
the Shares voted on any matter (without regard to series or class) shall
decide such matter and a plurality shall elect a Trustee.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if Shareholders entitled to vote more than fifty percent (50%) of the
votes entitled to be cast on the matter of each series or class or, where any
provision of law, this Declaration of Trust or the By-Laws permits or requires
that the holders of Shares vote in the aggregate and not as a series or class,
if Shareholders entitled to vote more than fifty percent (50%) of the votes
entitled to be cast thereon (without regard to series or class) (or in either
case such larger vote as shall be required by any provision of this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of
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Shareholders. Such consent shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions for
Shareholders' votes and meetings and related matters not inconsistent with the
provisions hereof.
ARTICLE VI
Distributions, Redemptions and Repurchases,
and Determination of Net Asset Value
Distributions
Section 1. The Trustees may in their sole discretion from time to
time distribute to the Shareholders of any series such income and gains,
accrued or realized, as the Trustees may determine, after providing for actual
and accrued expenses and liabilities of such series (including such reserves
as the Trustees may establish) determined in accordance with this Declaration
of Trust and good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions to any series, if any be made, shall be in Shares of such
series, in cash or otherwise and on a date or dates determined by the
Trustees. At any time and from time to time in their discretion, the Trustees
may distribute to the Shareholders of any series as of a record date or dates
determined by the Trustees, in Shares of such series, in cash or otherwise,
all or part of any gains realized on the sale or disposition of property of
the series or otherwise, or all or part of any other principal of the Trust
attributable to the series. Except to the extent otherwise required or
permitted by the preferences and special or relative rights or privileges of
any classes of Shares of that series, each distribution pursuant to this
Section 1 shall be made ratably according to the number of Shares of the
series held by the several Shareholders on the applicable record date thereof,
provided that distributions from assets of a series may only be made to the
holders of the Shares of such series and provided that no distributions need
be made on Shares purchased pursuant to orders received, or for which payment
is made, after such time or times as the Trustees may determine. Any
distribution to the Shareholders of a particular class of Shares shall be made
to such Shareholders pro rata in proportion to the number of Shares of such
class held by each of them. Any distribution paid in Shares will be paid at
the net asset value thereof as determined in accordance with this Declaration
of Trust. The Trustees have the power, in their discretion, to distribute for
any year amounts sufficient to enable the Trust to
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qualify as a "regulated investment company" under the Internal Revenue Code as
amended (or any successor thereto) to avoid any liability for federal income
tax in respect of that year.
Redemptions and Repurchases
Section 2. Any holder of Shares of the Trust may, by presentation of
a request in proper form, together with his certificates, if any, for such
Shares, in proper form for transfer to the Trust or duly authorized agent of
the Trust, request redemption of his shares for the net asset value thereof
determined and computed in accordance with the provisions of this Section 2
and the provisions of Section 6 of this Article VI.
Upon receipt by the Trust or its duly authorized agent, as the case may
be, of such a request for redemption of Shares in proper form, such Shares
shall be redeemed at the net asset value per share of the particular series or
class next determined after such request is received or determined as of such
other time fixed by the Trustees as may be permitted or required by the 1940
Act. The criteria for determining what constitutes a request for redemption
in proper form and the time of receipt of such request shall be fixed by the
Trustees.
The obligation of the Trust to redeem its Shares as set forth above in
this Section 2 shall be subject to the condition that such obligation may be
suspended by the Trust by or under authority of the Trustees during any period
or periods when and to the extent permissible under the 1940 Act. If there is
such a suspension, any Shareholder may withdraw any request for redemption
which has been received by the Trust during any such period and the applicable
net asset value with respect to which would but for such suspension be
calculated as of a time during such period. Upon such withdrawal, the Trust
shall return to the Shareholder the certificates therefor, if any.
The Trust may also purchase, repurchase or redeem Shares in accordance
with such other methods, upon such other terms and subject to such other
conditions as the Trustee may from time to time authorize at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made. Shares redeemed
or repurchased by the Trust hereunder shall be cancelled upon such redemption
or repurchase without further action by the Trust or the Trustees and the
number of issued and outstanding Shares of the relevant series and class shall
thereupon be reduced by such amount.
Payment for Shares Redeemed
Section 3. Payment of the redemption price for Shares redeemed
pursuant to this Article VI shall be made by the Trust
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or its duly authorized agent after receipt by the Trust or its duly
authorized agent of a request for redemption in proper form (together with any
certificates for such Shares as provided in Section 2 above) in accordance
with procedures and subject to conditions prescribed by the Trustees;
provided, however, that payment may be postponed during the period in which
the redemption of Shares is suspended under Section 2 above. Subject to any
generally applicable limitation imposed by the Trustees, any payment on
redemption, purchase or repurchase by the Trust of Shares may, if authorized
by the Trustees, be made wholly or partly in kind, instead of in cash. Such
payment in kind shall be made by distributing securities or other property,
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities and other property then held by the series of
Shares being redeemed, purchased or repurchased (but not necessarily involving
a portion of each of the series' holdings) and taken at their value used in
determining the net asset value of the Shares in respect of which payment is
made.
Redemptions at the Option of the Trust
Section 4. The Trust shall have the right at its option and at any
time and from time to time to redeem Shares of any Shareholder at the net
asset value thereof as determined in accordance with Section 6 of this Article
VI, if at such time such Shareholder owns fewer shares of a series or class
than, or Shares of a series or class having an aggregate net asset value of
less than, an amount determined from time to time by the Trustees. Any such
redemption at the option of the Trust shall be made in accordance with such
other criteria and procedures for determining the Shares to be redeemed, the
redemption date and the means of effecting such redemption as the Trustees may
from time to time authorize.
Additional Provisions Relating to Dividends, Redemptions and Repurchases
Section 5. The completion of redemption, purchase or repurchase of
Shares shall constitute a full discharge of the Trust and the Trustees with
respect to such Shares. No dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
series or class) with respect to, nor any redemption or repurchase of, the
Shares of any series or class shall be effected by the Trust other than from
the assets of such series.
Determination of Net Asset Value
Section 6. The term "net asset value" of each Share of a series or
class as of any particular time shall be the quotient obtained by dividing the
value, as at such time, of the net
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assets of such series or class (i.e., the value of the assets of such series
or class less the liabilities of such series or class, exclusive of
liabilities represented by the Shares of such series or class) by the total
number of Shares of such series or class outstanding at such time, all
determined and computed in accordance with the Trust's current prospectus.
The Trustees, or any officer, or officers or agent of the Trust
designated for the purpose by the Trustees shall determine the net asset value
of the Shares of each series or class, and the Trustees shall fix the time or
times as of which the net asset value of the Shares of each series or class
shall be determined and shall fix the periods during which any such net asset
value shall be effective as to sales, redemptions and repurchases of, and
other transactions in, the Shares of such series or class, except as such
times and periods for any such transaction may be fixed by other provisions of
this Declaration of Trust or by the By-Laws.
Determinations in accordance with this Section 6 made in good faith
shall be binding on all parties concerned.
How Long Shares are Outstanding
Section 7. Shares of the Trust surrendered to the Trust for
redemption by it pursuant to the provisions of Section 2 of this Article VI
shall be deemed to be outstanding until the redemption price thereof is
determined pursuant to this Article VI and, thereupon and until paid, the
redemption price thereof shall be deemed to be a liability of the Trust.
Shares of the Trust purchased by the Trust in the open market shall be deemed
to be outstanding until confirmation of purchase thereof by the Trust and,
thereupon and until paid, the purchase price thereof shall be deemed to be a
liability of the Trust. Shares of the Trust redeemed by the Trust pursuant to
Section 4 of this Article VI shall be deemed to be outstanding until said
Shares are deemed to be redeemed in accordance with procedures adopted by the
Trustees pursuant to said Section 4.
ARTICLE VII
Compensation and Limitation of Liability
of Trustees and Shareholders
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust if the rate thereof is prescribed by such
Trustees. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust, it being recognized that
such employment may result in such Trustee being considered an Affiliated
Person or an Interested Person.
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Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee,
investment adviser or manager, principal underwriter or custodian, nor shall
any Trustee be responsible for the act or omission of any other Trustee.
Nothing in this Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been executed or done only in or
with respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust or a particular
series of Shares, and may contain such further recital as he or they may deem
appropriate, but the omission thereof shall not operate to bind any Trustees
or Trustee or officers or officer or Shareholders or Shareholder individually.
All persons extending credit to, contracting with or having any claim
against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares, as the
case may be, for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Trustees' Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested. A Trustee
shall be liable only for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and
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for nothing else, and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees hereunder, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
In discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant and (with respect to the subject matter of the contract
involved) any officer, partner or responsible employee of any other party to
any contract entered into pursuant to Section 2 of Article IV. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made or to be made
by the Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
ARTICLE VIII
Indemnification
Subject to the exceptions and limitations contained in this Article,
every person who is, or has been, a Trustee or officer of the Trust (including
persons who serve at the request of the Trust as directors, officers or
trustees of another organization in which the Trust has an interest as a
shareholder, creditor or otherwise) hereinafter referred to as a "Covered
Person", shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been
such a Trustee, director or officer and against amounts paid or incurred by
him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of
a final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office;
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(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination that
such Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office by the court or other body approving the settlement or other
disposition or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry) that he did not
engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such
a person. Nothing contained herein shall affect any rights to indemnification
to which Trust personnel other than Covered Persons may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Article
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Article, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out
of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
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As used in this Article, a "Disinterested Trustee" is one (a) who is not
an "interested person" of the Trust, as defined in the 1940 Act (including
anyone who has been exempted from being an "interested person" by any rule,
regulation or order of the Commission), and (b) against whom none of such
actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending.
As used in this Article, the words "claim", "action", "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorneys' fees,
cost, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
to be held harmless from and indemnified against all loss and expense arising
from such liability but only out of the assets of the particular series of
Shares of which he or she is or was a Shareholder; provided, however, there
shall be no liability or obligation of the Trust arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of Shares or for losses suffered by reason of any changes in value
of any Trust assets.
ARTICLE IX
Miscellaneous
Duration, Termination and Reorganization of Trust
Section 1. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time
by the Trustees by written notice to the Shareholders without a vote of the
Shareholders of the Trust or by the vote of the Shareholders entitled to vote
more than fifty percent (50%) of the votes of each series or class entitled to
be cast on the matter. Any series or class of Shares may be terminated at any
time by the Trustees by written notice to the Shareholders of such series or
class without a vote of the Shareholders of such series or class or by the
vote of the Shareholders of such series or class entitled to vote more than
fifty percent (50%) of the votes entitled to be cast on the matter.
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Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses
and liabilities, whether due or accrued or anticipated, of the particular
series or class as may be determined by the Trustees, the Trust shall in
accordance with such procedures as the Trustees consider appropriate reduce to
the extent necessary the remaining assets of the particular series to
distributable form in cash or other securities, or any combination thereof,
and distribute the proceeds to the Shareholders of the series or class
involved, ratably according to the number of Shares of such series or class
held by the several Shareholders of such series or class on the date of
termination. Any such distributions with respect to any series which has one
or more classes of Shares outstanding shall be made ratably to such classes in
the same proportion as the number of Shares of each class bears to the total
number of Shares of the series, except to the extent otherwise required or
permitted by the preferences and special or relative rights or privileges of
any classes of Shares of any such series.
At any time by the affirmative vote of the Shareholders of the affected
series entitled to vote more than fifty percent (50%) of the votes entitled to
be cast on the matter, the Trustees may sell, convey and transfer the assets
of the Trust, or the assets belonging to any one or more series, to another
trust, partnership, association or corporation organized under the laws of any
state of the United States, or to the Trust to be held as assets belonging to
another series of the Trust, in exchange for cash, shares or other securities
(including, in the case of a transfer to another series of the Trust, Shares
of such other series) with such transfer being made subject to or with the
assumption by the transferee of, the liabilities belonging to each series the
assets of which are so distributed. Following such transfer, the Trustees
shall distribute such cash, shares or other securities (giving due effect to
the assets and liabilities belonging to and any other differences among the
various series the assets belonging to which have so been transferred) among
the Shareholders of the series the assets belonging to which have been so
transferred; and if all the assets of the Trust have been so distributed, the
Trust shall be terminated.
Filing of Copies, References, Headings
Section 2. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by any officer of the
Trust as to whether or not any
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such amendments have been made and as to any matters in connection with the
Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof", and "hereunder", shall be deemed to refer to this instrument as
amended from time to time. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Applicable Law
Section 3. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall
be of the type commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.
Amendments
Section 4. This Declaration of Trust may be amended at any time by
an instrument in writing signed by a majority of the then Trustees when
authorized so to do by vote of Shareholders holding more than fifty percent
(50%) of the Shares of each series entitled to vote, except that an amendment
which in the determination of the Trustees shall affect the holders of one or
more series or classes of Shares but not the holders of all outstanding series
and classes shall be authorized by vote of the Shareholders holding more than
fifty percent (50%) of the Shares entitled to vote of each series or class
affected and no vote of Shareholders of a series or class not affected shall
be required. Amendments having the purpose of changing the name of the Trust
or of supplying any omission, curing any ambiguity or curing, correcting or
supplementing any provision which is defective or inconsistent with the 1940
Act or with the requirements of the Internal Revenue Code and the regulations
thereunder for the Trust's obtaining the most favorable treatment thereunder
available to regulated investment companies shall not require authorization by
Shareholder vote.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
for himself and his assigns, as of the day and year first above written.
/s/ John Kingston
------------------------------
(SEAL) John Kingston III, Trustee
Residence Address:
144 Rindge Avenue
Cambridge, MA 02110
COMMONWEALTH OF MASSACHUSETTS
County of Suffolk, ss.
Then personally appeared the above-named John Kingston III who
acknowledged the foregoing instrument to be his free act and deed, before me
this 3rd day of October, 1996.
/s/ Lisa A. Frasca
------------------------------
Notary Public
My Commission Expires: May 15, 2003
------------
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KEMPER TRUST #27
WRITTEN INSTRUMENT AMENDING THE
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being the sole trustee of Kemper Trust #27 (the "Trust"),
a business trust organized pursuant to an Agreement and Declaration of Trust
dated October 3, 1996 (the "Declaration of Trust"), pursuant to Section 1 of
Article I and Section 4 of Article IX of the Declaration of Trust, does hereby
change the name of the Trust to "Kemper Aggresive Growth Fund." This instrument
shall constitute an amendment to the Declaration of Trust.
IN WITNESS WHEREOF, the undersigned has this 4th day of October, 1996,
signed these presents.
/s/ Philip J. Collora
----------------------------------
Philip J. Collora, Sole Trustee
2734 Lawndale Avenue
Evanston, Illinois 60201
The address of the Trust is:
120 South LaSalle Street
Chicago, Illinois 60603
