Filed electronically with the Securities and Exchange Commission
on December 3, 1998
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 3 / X /
-
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 4 / X /
-
Kemper Securities Trust
-----------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
-------------
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On February 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/ X / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
KEMPER SECURITIES TRUST
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Front and Back Cover Pages FRONT AND BACK COVER
2. Risk/Return Summary: VALUE STOCK INVESTING
Investments, Risks and Investment Approach
Performance Principal Risk Factors
ABOUT THE FUNDS
Investment Objective and Strategies
Principal Risks
Past Performance
Principal Strategies and Investments
Related Risks
3. Risk/Return Summary: Fee ABOUT THE FUNDS
Table Expense Information
4. Investment Objectives, VALUE STOCK INVESTING
Principal Investment Investment Approach
Strategies and Related Risks Principal Risk Factors
ABOUT THE FUNDS
Investment Objective and Strategies
Principal Risks
Principal Strategies and Investments
Related Risks
5. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Management, Organization and INVESTMENT MANAGER
Capital Structure PORTFOLIO MANAGEMENT
7. Shareholder Information ABOUT YOUR INVESTMENT
Choosing a Share Class
Buying Shares
Selling and Exchanging Shares
Distribution and Taxes
Transaction Information
8. Distribution Arrangements ABOUT THE FUNDS
Expense Information
9. Financial Highlights ABOUT THE FUNDS
Information Financial Highlights
Cross Reference - Page 1
<PAGE>
KEMPER SECURITIES TRUST
CROSS-REFERENCE SHEET
(continued)
Items Required By Form N-1A
---------------------------
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
-------- ------------ ----------------------------------------------
10. Cover Page and Table COVER PAGE
of Contents TABLE OF CONTENTS
11. Fund History SHAREHOLDER RIGHTS
12. Description of the INVESTMENT RESTRICTIONS
Fund and Its INVESTMENT POLICIES AND TECHNIQUES
Investments and Risks
13. Management of the Fund INVESTMENT MANAGER AND UNDERWRITER
OFFICERS AND TRUSTEES
14. Control Persons and OFFICERS AND TRUSTEES
Principal Holders of
Securities
15. Investment Advisory INVESTMENT MANAGER AND UNDERWRITER
and Other Services
16. Brokerage Allocation PORTFOLIO TRANSACTIONS
and Other Practices
17. Capital Stock and SHAREHOLDER RIGHTS
Other Securities
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of Shares NET ASSET VALUE
SPECIAL FEATURES
19. Taxation of the Fund DIVIDENDS AND TAXES
20. Underwriters INVESTMENT MANAGER AND UNDERWRITER
21. Calculation of PERFORMANCE
Performance Data
22. Financial Statements PERFORMANCE
</TABLE>
Cross Reference - Page 2
<PAGE>
KEMPER EQUITY FUNDS - VALUE STYLE
SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 1, 1999
CLASS I SHARES
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
The above 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
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; and (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund. Class I shares
currently are available for purchase only from Kemper Distributors, Inc.
("KDI"), principal underwriter for the Funds, and, in the case of category 4
above, elected dealers authorized by KDI. 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.
<PAGE>
The following information supplements the indicated sections of the prospectus.
Average Annual Total Returns - Class I shares
For periods ended
December 31, 1998 One Year Five Years Ten Years
Kemper Contrarian Fund
Kemper-Dreman High
Return Equity Fund
Kemper Small Cap Value
Fund
Kemper-Dreman Financial
Services Fund
Kemper Small Cap
Relative Value Fund
Kemper U.S. Growth and
Income Fund
Kemper Value Fund
S&P 500 Stock Index . % . % . %
-- -- -- -- -- --
The S&P 500 Stock Index is a commonly recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transaction
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Buying shares and Special features sections.
- --------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Maximum
Sales Deferred
Charge on Maximum Sales
Purchases Sales Charge (as
(as a % of Charge on a % of
offering Reinvested Redemption Exchange redemption
price) Dividends Fee Fee proceeds)
- ----------------------------------------------------------------------------------------------------------
Kemper Contrarian Fund
- ----------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund
- ----------------------------------------------------------------------------------------------------------
Kemper Small Cap Value Fund
- ----------------------------------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
- ----------------------------------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
- ----------------------------------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
- ----------------------------------------------------------------------------------------------------------
2
<PAGE>
Kemper Value Fund
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income. These are expressed as a percentage of the fund's average
daily net assets for the year ended .
------
- --------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total fund
Investment operating
management fee Rule 12b-1 fees Other expenses expenses
- -----------------------------------------------------------------------------------------------------------------
Kemper Contrarian Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Small Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Value Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees and expenses if you did not sell your
Fees and expenses if you sold shares after: shares:
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
Kemper Contrarian
Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High
Return Equity Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap
Value Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman
Financial Services
Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap
Relative Value Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper U.S. Growth
and Income Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Value Fund
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS - TO BE UPDATED
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
3
<PAGE>
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper 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
Zurich Money Funds--Zurich Money Market Fund who have purchased shares because
they are participants in tax-exempt retirement plans of Scudder Kemper 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."
February 1, 1999
4
<PAGE>
LONG TERM
INVESTING
IN A
SHORT TERM
WORLD
February 1, 1999
Prospectus
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
Kemper Equity Funds
Value Style
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
The Securities and Exchange Commission does not make
any judgements as to whether any mutual fund is a good investment.
Nor does it judge the accuracy or completeness of any
mutual fund prospectus. It is a federal offense to suggest otherwise.
<PAGE>
CONTENTS
Value Stock Investing..................................................3
Investment approach..................................................3
Principal risk factors...............................................3
ABOUT THE FUNDS...........................................................4
Kemper Contrarian Fund.................................................4
Kemper-Dreman High Return Equity Fund.................................12
Kemper Small Cap Value Fund...........................................20
Kemper-Dreman Financial Services Fund.................................30
Kemper Small Cap Relative Value Fund..................................38
Kemper U.S. Growth and Income Fund....................................45
Kemper Value Fund.....................................................52
Investment Manager..................................................59
ABOUT YOUR INVESTMENT....................................................63
Choosing a share class..............................................63
Buying shares.......................................................65
Selling and exchanging shares.......................................68
Distributions and taxes.............................................69
Transaction information.............................................71
2
<PAGE>
VALUE STOCK INVESTING
Investment approach
Each of the funds presented in this prospectus uses a value approach to
investing - that is, they look for common stocks that the investment manager
believes are undervalued. The principal factors considered by a manager in
identifying the value of a stock is its price-to-earnings (P/E) ratio,
price-to-book (P/B) ratio, price-to-cashflow (P/CF) ratio and dividend yield.
The objective of value investing is to reduce the risk of owning stocks by
investing in companies with sound finances whose current market prices are low
in relation to earnings. In determining whether a company's finances are sound,
the investment manager considers, among other things, its cash position and
current ratio of assets compared to current liabilities.
In selecting among stocks for the funds' portfolios, the investment manager also
considers factors such as the following about the issuer:
o Financial strength
o Book-to-market value
o Five and ten-year earnings growth rates
o Five and ten-year dividend growth rates
o Five and ten-year return on equity
o Size of institutional ownership
o Earnings estimates for the next 12 months
Principal risk factors
Stock Market. Each fund's returns and net asset value will go up and down, and
it is possible to lose money invested in a fund. Stock market movements will
affect the funds' share prices on a daily basis. Declines are possible both in
the overall stock market or in the types of securities held by the funds.
Value Stocks. In rising markets, the types of stocks emphasized in the funds may
underperform other types of stocks.
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives. The determination
that a stock is undervalued
3
<PAGE>
is subjective; the market may not agree, and the stock's price may not rise to
the expected level and may even fall further.
ABOUT THE FUNDS
KEMPER CONTRARIAN FUND
Investment objective and strategies
Kemper Contrarian Fund seeks long-term capital appreciation with current income
as its secondary objective. The fund's investment objective and policies may be
changed without a vote of shareholders. This fund invests in common stocks of
larger publicly traded companies with the following attributes:
o a record of earnings and dividends
o low price-earnings ratios
o reasonable returns on equity
o sound finances
o perceived intrinsic value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
4
<PAGE>
KEMPER CONTRARIAN FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended S&P 500
December 31, 1998 Stock Index
One Year __.__% __.__% __.__% 33.38%
Five Years __.__% __.__% __.__% 20.25%
Ten Years __.__% __.__% __.__% 18.04%
The S&P 500 Stock Index is a widely recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
5
<PAGE>
KEMPER CONTRARIAN FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
- --------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- --------------------------------------------------------------------------------
Redemption Fee None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- --------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Investment management fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other expenses 0.60% 0.76% 0.97%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.35% 2.26% 2.47%
- --------------------------------------------------------------------------------
6
<PAGE>
KEMPER CONTRARIAN FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $630 $250 1 Year $700 $230 $250
- ---------------------------------------------- -----------------------------------------------
3 Years $980 $1,010 $770 3 Years $980 $710 $770
- ---------------------------------------------- -----------------------------------------------
5 Years $1,270 $1,410 $1,310 5 Years $1,270 $1,210 $1,310
- ---------------------------------------------- -----------------------------------------------
10 Years $2,110 $2,160 $2,810 10 Years $2,110 $2,160 $2,810
- ---------------------------------------------- -----------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of undervalued equity
securities. Securities may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions or actual
or anticipated unfavorable developments affecting the company.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also invest in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they will also generate lower returns than stocks in most
markets. Because this defensive policy differs from the fund's investment
objective, the fund may not achieve its goals during a defensive period.
7
<PAGE>
KEMPER CONTRARIAN FUND
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
8
<PAGE>
KEMPER CONTRARIAN FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
Jan. 1 to Year ended December 31,
Nov. 30,
1997
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Class A Shares
Per Share Operating Performance
Net asset value, beginning of $16.93 16.20 12.18 13.62 13.50 12.38
period
- --------------------------------------------------------------------------------
Income from investment .23 .23 .26 .28 .22 .25
operations:
Net investment income
- --------------------------------------------------------------------------------
Net realized and unrealized 4.25 2.07 5.05 (.28) .96 1.13
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations 4.48 2.30 5.31 -- 1.18 1.38
- --------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .20 .22 .24 .28 .22 .26
- --------------------------------------------------------------------------------
Distributions from net .08 1.35 1.05 1.16 .84 --
realized gain
- --------------------------------------------------------------------------------
Total dividends .28 1.57 1.29 1.44 1.06 .26
- --------------------------------------------------------------------------------
Net asset value, end of period $21.13 16.93 16.20 12.18 13.62 13.50
- --------------------------------------------------------------------------------
Total Return (not annualized) 26.58% 14.42 44.57 (.03) 9.10 11.32
- --------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 1.35% 1.23 1.25 1.25 1.25 1.25
- --------------------------------------------------------------------------------
Net investment income 1.47% 1.56 1.85 1.89 1.64 2.04
- --------------------------------------------------------------------------------
9
<PAGE>
KEMPER CONTRARIAN FUND
- --------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
Expenses
1.35% 1.25 1.66 1.42 1.54 1.53
- --------------------------------------------------------------------------------
Net investment income
1.47% 1.54 1.44 1.71 1.34 1.76
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
------------------------ ----------------------
Jan. 1 Year Sept. Jan. Year Sept.
to Nov. ended 11 to 1 to ended 11 to
30, 1997 Dec. Dec. Nov. Dec. Dec.
31, 31, 30, 31, 31, 1995
1996 1995 1997 1996
- --------------------------------------------------------- -------------------------
Class B and C Shares
- -----------------------------------------------------------------------------------
Per Share Operating Performance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $16.92 16.20 15.26 16.90 16.20 15.26
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .08 .11 .07 .06 .11 .08
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 4.22 2.07 1.85 4.20 2.05 1.85
- -----------------------------------------------------------------------------------
Total from investment operations 4.30 2.18 1.92 4.26 2.16 1.93
- -----------------------------------------------------------------------------------
Less dividends: .06 .11 .07 .02 .11 .08
Distributions from net
investment income
- -----------------------------------------------------------------------------------
Distributions from net .08 1.35 .91 .08 1.35 .91
realized gain
- -----------------------------------------------------------------------------------
Total dividends .14 1.46 .98 .10 1.46 .99
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.08 16.92 16.20 21.06 16.90 16.20
- -----------------------------------------------------------------------------------
Total Return (not annualized) 25.44% 13.61 12.83 25.26 13.51 12.85
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 2.26% 2.11 2.00 2.47 2.12 1.95
- -----------------------------------------------------------------------------------
Net investment income .56% .68 .88 .35 .67 .93
- -----------------------------------------------------------------------------------
10
<PAGE>
KEMPER CONTRARIAN FUND
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Expenses 2.26% 2.34 2.36 2.47 2.80 2.31
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net investment income .56% .45 .52 .35 (.01) .57
- -----------------------------------------------------------------------------------
All Classes
Jan. 1 Year ended Dec. 31,
to Nov.
30, 1997
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of period (in $178,115 77,592 25,482 12,983 17,157 14,884
thousands)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 77% 95 30 16 16 28
(annualized)
- -----------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from
January 1 to November 30, 1997 and the year ended December 31, 1996 were $.0538
and $.0490, respectively.
- -----------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Investment objective and strategies
Kemper-Dreman High Return Equity Fund seeks to achieve a high rate of total
return. The fund's investment objective and policies may be changed without a
vote of shareholders.
This fund invests in common stocks of larger publicly traded companies with the
following attributes:
o emphasis on high dividends
o a record of earnings and dividends
o low price-earnings ratios
o reasonable returns on equity
o sound finances
o perceived intrinsic value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, investing a significant percentage in one or more market sectors
creates exposure to financial, economic, business and other developments
affecting issuers in that sector.
12
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended S&P 500
December 31, 1998 Stock Index
One Year __.__% __.__% __.__% 33.38%
Five Years __.__% __.__% __.__% 20.25%
Ten Years __.__% __.__% __.__% 18.04%
The S&P 500 Stock Index is a widely recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
13
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _____.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee 0.71% 0.71% 0.71%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses 0.51% 0.66% 0.64%
- -------------------------------------------------------------------------------------
Total fund operating expenses 1.22% 2.12% 2.10%
- -------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ----------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $690 $620 $210 1 Year $690 $220 $210
- ----------------------------------------------- ----------------------------------------------
3 Years $940 $960 $660 3 Years $940 $610 $660
- ----------------------------------------------- ----------------------------------------------
- ----------------------------------------------- ----------------------------------------------
5 Years $1,210 $1,340 $1,130 5 Years $1,210 $1,140 $1,130
- ----------------------------------------------- ----------------------------------------------
- ----------------------------------------------- ----------------------------------------------
10 Years $1,970 $2,010 $1,430 10 Years $1,970 $1,010 $1,430
- ----------------------------------------------- ----------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities the
investment manager believes are undervalued. Securities may be undervalued as a
result of overreaction by investors to unfavorable news about a company,
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities. The fund is managed with a view to achieving a high
rate of total return on investors' capital primarily through appreciation of its
common stock holdings, options transactions and by acquiring and selling stock
index futures and options thereon and, to a lesser extent, through dividend and
interest income, all of which are elements of total return.
Although the fund does not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors, such as the financial services
sector.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants.
15
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
16
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
Jan. 1 Year ended Dec. 31,
to Nov.
30,
1997
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Class A Shares
Per Share Operating Performance
- --------------------------------------------------------------------------------
Net asset value, beginning of $26.52 21.49 15.11 15.50 14.62 12.53
period
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .39 .26 .25 .21 .24
- --------------------------------------------------------------------------------
Net realized and unrealized 6.89 5.75 6.76 (.39) 1.13 2.21
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations 7.43 6.14 7.02 (.14) 1.34 2.45
- --------------------------------------------------------------------------------
Less dividends:
Distributions from net .37 .38 .24 .25 .21 .24
investment income
- --------------------------------------------------------------------------------
Distributions from net realized .06 .73 .40 -- .25 .12
gain
- --------------------------------------------------------------------------------
Total dividends .43 1.11 .64 .25 .46 .36
- --------------------------------------------------------------------------------
Net asset value, end of period $33.52 26.52 21.49 15.11 15.50 14.62
- --------------------------------------------------------------------------------
Total Return (not annualized) 28.15% 28.79 46.86 (.99) 9.22 19.80
- --------------------------------------------------------------------------------
Ratios to Average Net Assets 1.22% 1.21 1.25 1.25 1.25 1.25
(annualized)
Expenses absorbed by the Fund
- --------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.55 1.58 1.47 1.88
- --------------------------------------------------------------------------------
17
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Other Ratios to Average Net 1.22% 1.21 1.57 1.39 1.56 1.70
Assets (annualized)
Expenses
- -----------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.23 1.44 1.16 1.43
- -----------------------------------------------------------------------------------
Class B Class C
----------------------- ---------------------------
Jan. 1 Year Sept. Jan. 1 Year Sept. 11
to Nov. ended 11 to to ended to Dec.
30, Dec. Dec. Nov. Dec. 31, 1995
1997 31, 31, 30, 31,
1996 1995 1997 1996
- -------------------------------------------------------- ---------------------------
Class B and C Shares
Per Share Operating Performance
- -------------------------------------------------------- ---------------------------
Net asset value, beginning of $26.44 21.47 19.45 26.45 21.48 19.45
period
- -------------------------------------------------------- ---------------------------
Income from investment .31 .19 .07 .32 .20 .09
operations:
Net investment income
- -------------------------------------------------------- ---------------------------
Net realized and unrealized 6.84 5.72 2.41 6.83 5.72 2.41
gain
- -------------------------------------------------------- ---------------------------
Total from investment operations 7.15 5.91 2.48 7.15 5.92 2.50
- -------------------------------------------------------- ---------------------------
Less dividends: .16 .21 .06 .16 .22 .07
Distributions from net
investment income
- -------------------------------------------------------- ---------------------------
Distributions from net .06 .73 .40 .06 .73 .40
realized gain
- -------------------------------------------------------- ---------------------------
Total dividends .22 .94 .46 .22 .95 .47
- -------------------------------------------------------- ---------------------------
Net asset value, end of period $33.37 26.44 21.47 33.38 26.45 21.48
- -------------------------------------------------------- ---------------------------
Total Return (not annualized) 27.10% 27.63 12.88 27.10 27.66 12.94
- -------------------------------------------------------- ---------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 2.12% 2.20 2.00 2.10 2.22 1.95
- -------------------------------------------------------- ---------------------------
Net investment income 1.48% 1.13 .61 1.50 1.11 .66
- -------------------------------------------------------- ---------------------------
18
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Expenses 2.12% 2.31 2.35 2.10 2.33 2.30
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net investment income 1.48% 1.02 .26 1.50 1.00 .31
- -----------------------------------------------------------------------------------
All Classes
Jan. 1 to Year ended December 31,
Nov. 30,
1997
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of period $2,931,721 737,834 98,196 35,005 28,413 14,425
(in thousands)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 5% 10 18 12 14 13
(annualized)
- -----------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended December 31, 1996 were
$.0501 and $.0513, respectively.
19
<PAGE>
KEMPER SMALL CAP VALUE FUND
Investment objective and strategies
Kemper Small Cap Value Fund seeks long-term capital appreciation. The fund's
investment objective and policies may be changed without a vote of shareholders.
This fund invests in common stocks of undervalued small companies, many of which
are similar in size to the stocks in the Russell 2000 Index.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, the fund's investment focus on smaller companies involves greater
risk than a fund that invests primarily in larger, more established companies.
20
<PAGE>
KEMPER SMALL CAP VALUE FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
For periods ended Class A Class B Class C Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The______ Index is a widely recognized unmanaged measure of ________. Index
returns assume reinvestment of dividends and, unlike the fund's returns, do not
reflect any fees or expenses.
21
<PAGE>
KEMPER SMALL CAP VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _______.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Investment management fee 0.73% 0.73% 0.73%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other expenses 0.59% 0.86% 0.76%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.32% 2.34% 2.24%
- --------------------------------------------------------------------------------
22
<PAGE>
KEMPER SMALL CAP VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- -------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $640 $230 1 Year $700 $230 $230
- -------------------------------------------- -------------------------------------------------
3 Years $970 $1,030 $700 3 Years $970 $730 $700
- -------------------------------------------- -------------------------------------------------
5 Years $1,260 $1,450 $1,200 5 Years $1,260 $1,250 $1,200
- -------------------------------------------- -------------------------------------------------
10 Years $2,070 $2,190 $2,570 10 Years $2,070 $2,190 $2,570
- -------------------------------------------- -------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities the
investment manager believs are undervalued. Securities may be undervalued as a
result of overreaction by investors to unfavorable news about a company,
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities of companies that are similar in size to those comprising
the Russell 2000 Index. Typically, most companies selected for inclusion in the
fund have market capitalizations ranging from approximately $100 million to $1
billion. The fund sells securities of companies that have grown in market
capitalization above the maximum of the Russell 2000 Index, as necessary to keep
focused on smaller companies.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
23
<PAGE>
KEMPER SMALL CAP VALUE FUND
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Investments in securities of companies with small market capitalizations are
generally considered to offer greater opportunity for appreciation and to
involve greater risks of depreciation than securities of companies with larger
market capitalizations. Since the securities of such companies are not as
broadly traded as those of companies with larger market capitalizations, these
securities are often subject to wider and more abrupt fluctuations in market
price.
24
<PAGE>
KEMPER SMALL CAP VALUE FUND
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the fund may be more volatile than the shares of a fund that
invests in larger capitalization stocks.
25
<PAGE>
KEMPER SMALL CAP VALUE FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
<TABLE>
<CAPTION>
Jan. 1 Year ended December 31,
to Nov.
30,
1997
1996(b) 1995 1994 1993 1992(a)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Per Share Operating Performance
Net asset value, beginning of $18.28 14.50 10.85 11.23 11.52 10.00
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .05 .14 (.02) -- .06 .03
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 3.50 4.14 4.64 .02 .23 1.95
- -----------------------------------------------------------------------------------
Total from investment operations 3.55 4.28 4.62 .02 .29 1.98
- -----------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income -- .07 -- -- .06 .03
- -----------------------------------------------------------------------------------
Distributions from net -- .43 .97 .40 .52 .43
realized gain
- -----------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58 .46
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.83 18.28 14.50 10.85 11.23 11.52
- -----------------------------------------------------------------------------------
Total Return (not annualized) 19.42% 29.60 43.29 .15 2.54 32.51*
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 1.32% 1.31 1.25 1.25 1.25 1.25
- -----------------------------------------------------------------------------------
26
<PAGE>
KEMPER SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------
Net investment income .51% .87 (.16) (.03) .53 .81
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
Expenses 1.32% 1.47 1.83 1.82 2.09 4.29
- -----------------------------------------------------------------------------------
Net investment income (loss) .51% .71 (.74) (.61) (.32) (2.24)
- -----------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------
----------------------------------------------------
Jan. 1 Year Sept. Jan. 1 Year Sept.
to Nov. ended 11 to to ended 11 to
30, 1997 Dec. Dec. Nov. Dec. Dec.
31, 31, 1995 30, 31, 31, 1995
1996(b) 1997 1996(b)
- -----------------------------------------------------------------------------------
Class B and C Shares
Per Share Operating Performance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $18.14 14.48 15.75 18.17 14.48 15.75
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (.04) .01 (.02) (.03) .01 (.02)
- -----------------------------------------------------------------------------------
Net realized and unrealized 3.36 4.11 (.41) 3.37 4.14 (.41)
gain (loss)
- -----------------------------------------------------------------------------------
Total from investment 3.32 4.12 (.43) 3.34 4.15 (.43)
operations
- -----------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income -- .03 -- -- .03 --
- -----------------------------------------------------------------------------------
Distributions from net -- .43 .84 -- .43 .84
realized gain
- -----------------------------------------------------------------------------------
Total dividends -- .46 .84 -- .46 .84
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.46 18.14 14.48 21.51 18.17 14.48
- -----------------------------------------------------------------------------------
Total Return (not annualized) 18.30% 28.54 (2.52) 18.38 28.77 (2.51)
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
27
<PAGE>
Expenses absorbed by the Fund 2.34% 2.12 2.00 2.24 2.06 1.95
- -----------------------------------------------------------------------------------
28
<PAGE>
KEMPER SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------
Net investment income (loss) (.51)% (.06) (.99) (.41) .12 (.94)
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
Expenses 2.34% 2.49 2.39 2.24 2.19 2.35
- -----------------------------------------------------------------------------------
Net investment loss (.51)% (.31) (1.38) (.41) (.01) (1.34)
- -----------------------------------------------------------------------------------
(b) Per share data for 1996 were determined based on average shares
outstanding.
All Classes
Jan. 1 to Year ended December 31, May 22 to
Nov. 30, Dec. 31,
1997 1992
1996 1995 1994 1993
- ---------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of $1,263,144 273,222 31,606 6,931 4,875 2,385
period (in thousands)
- ---------------------------------------------------------------------------------
Portfolio turnover rate 83% 23 86 140 79 37
(annualized)
- ---------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended December 31, 1996 were
$.0547 and $.0426, respectively.
Note: Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating expenses of
the funds through December 31, 1996. The "Other Ratios to Average Net Assets"
are computed without this expense waiver or absorption.
29
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Investment objective and strategies
The fund seeks to provide long-term capital appreciation. The fund's investment
objective and policies may be changed without a vote of shareholders.
This fund invests primarily in common stocks and other equity securities of
companies in the financial services industry believed by the Fund's investment
manager to be undervalued.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
The fund's concentration in investments in the financial services industry
creates greater risk than investment across various industries, since the
financial, economic, and business developments affecting issuers in such
industry may have a greater effect on the fund than if it had not concentrated
its assets in the financial services industry. In addition, an investment in the
fund may involve significantly greater risks and greater volatility than a
diversified equity mutual fund that is invested in issuers in various
industries. The fund is subject to the risk that a particular group of related
stocks will decline in price due to industry-specific developments. As a result,
the fund should only be considered a long-term investment and part of a
well-diversified portfolio.
30
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
For periods ended Class A Class B Class C Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The______ Index is a widely recognized unmanaged measure of ________. Index
returns assume reinvestment of dividends and, unlike the fund's returns, do not
reflect any fees or expenses.
31
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
32
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- -------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $640 $230 1 Year $700 $230 $230
- -------------------------------------------- -------------------------------------------------
3 Years $970 $1,030 $700 3 Years $970 $730 $700
- -------------------------------------------- -------------------------------------------------
5 Years $1,260 $1,450 $1,200 5 Years $1,260 $1,250 $1,200
- -------------------------------------------- -------------------------------------------------
10 Years $2,070 $2,190 $2,570 10 Years $2,070 $2,190 $2,570
- -------------------------------------------- -------------------------------------------------
</TABLE>
Principal strategies and investments
The Fund concentrates its investments in securities of financial services
companies, including:
o commercial banks, insurance companies, thrifts, consumer finance companies,
commercial finance companies, and leasing companies
o securities brokerage firms, asset management firms, and
government-sponsored financial enterprises.
The Fund invests primarily in common stocks of larger,
listed companies with a record of earnings and dividends, low price-earnings
ratios, reasonable returns on equity and sound finances which, in the opinion of
the investment manager, have intrinsic value.
In the opinion of the Fund's investment manager, the Fund offers investors the
opportunity to participate in the substantial long-term appreciation potential
of companies in the financial services sector.
33
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Under normal circumstances, the Fund will invest at least 65% of its assets in
equity securities of companies in the financial services industry. A company
will be considered to be within the financial services industry if at least 50%
of its assets, revenues or net income are related to or derived from the
financial services industry. Earnings and cash flow analyses as well as a
company's conventional dividend payout ratio are important to this process.
Typically, the fund's portfolio will consist of approximately 25 to 55 stocks.
The Fund may invest up to 35% of its assets in investment-grade corporate debt
securities.
Although not principal investments, the fund may invest in when-issued
securities, stocks that pay no dividends, securities listed on stock exchanges
other than the New York Stock Exchange, those offered over-the-counter,
preferred stocks, convertible securities, non-investment grade debt securities,
foreign securities, rights and warrants. It may also invest in derivatives, such
as options and futures. Derivatives, which are primarily used to hedge the
fund's performance, are financial instruments whose value derives from another
security or index.
From time to time, the fund may invest up to 100% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
34
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements.
35
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
TO BE UPDATED
36
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Investment objective and strategies
Kemper Small Cap Relative Value Fund seeks long-term capital appreciation. The
fund's investment objective and policies may be changed without a vote of
shareholders.
This fund invests in common stocks of small companies which the investment
manager believes are undervalued relative to stocks of other companies in the
same industry.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, the fund's investment focus on smaller companies involves greater
risk than a fund that invests primarily in larger, more established companies.
Also, investing a significant percentage in one or more market sectors creates
exposure to financial, economic, business and other developments affecting
issuers in that sector.
37
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
38
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Class B Class C
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ________.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 1.02% 1.15% 1.12%
- -------------------------------------------------------------------------------------
Total fund operating expenses 1.77% 2.65% 2.62%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
39
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- --------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- --------------------------------------------- ------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- --------------------------------------------- ------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities
which the investment manager believes are undervalued. Securities may be
undervalued as a result of overreaction by investors to unfavorable news about a
company, industry or the stock markets in general or as a result of a market
decline, poor economic conditions, or actual or anticipated unfavorable
developments affecting the company.
The investment manager follows a relative value investment strategy, seeking
undervalued stocks typically found in major sectors of the Russell 2000 Index. A
relative value investment strategy is a strategy whereby stocks are selected
based on whether they are undervalued relative to other stocks in the same
sector. This allows the fund to invest in all sectors, including technology,
healthcare and other areas of the market that typically are underweighted in an
absolute value portfolio.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of companies that are similar in size to those
comprising the Russell 2000 Index. Typically, most companies selected for
inclusion in the fund have market capitalizations ranging from approximately
$100 million to $1 billion. The fund sells securities of companies that have
grown in market capitalization above the maximum of the Russell 2000 Index, as
necessary to keep the fund focused on smaller companies.
40
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
Although the fund does not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors.
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
41
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Investments in securities of companies with small market capitalizations are
generally considered to offer greater opportunity for appreciation and to
involve greater risks of depreciation than securities of companies with larger
market capitalizations. Since the securities of such companies are not as
broadly traded as those of companies with larger market capitalizations, these
securities are often subject to wider and more abrupt fluctuations in market
price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the fund may be more volatile than the shares of a fund that
invests in larger capitalization stocks.
42
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Financial highlights
To Be Updated
43
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Investment objective and strategies
Kemper U.S. Growth and Income Fund seeks to provide long-term growth of capital,
current income and growth of income. The fund's investment objective and
policies may be changed without a vote of shareholders.
The fund invests primarily in common stocks of U.S. companies that offer the
prospect for growth of earnings while paying current dividends. Over time,
continued growth of earnings tends to lead to higher dividends and enhancement
of capital value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
44
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
45
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
46
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- --------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- --------------------------------------------- ------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- --------------------------------------------- ------------------------------------------------
</TABLE>
Principal strategies and investments
The fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by U.S. common stocks and other
domestic equity securities. It maintains a diversified portfolio of equity
securities of companies with long-standing records of earnings growth and
higher-than-average dividend payouts. These companies, many of which are
mainstays of the U.S. economy, offer prospects for future growth of earnings and
dividends, and therefore may offer investors attractive long-term investment
opportunities. The fund will invest at least 80% of its assets in the equity
securities of U.S. issuers.
The fund's investment strategy, which emphasizes higher-yielding equity
securities issued by U.S. companies deemed to be undervalued by the investment
manager, may be more appropriate for the conservative portion of an investor's
equity portfolio.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of this process involves analyzing a
selected pool of dividend-paying equity securities to identify stocks that have
high yields relative to the yield of the Standard & Poor's 500 Composite Price
Index ("S&P 500"), a commonly-accepted benchmark for the U.S. stock market.
Also, the investment manager screens for stocks that have yields at the upper
end of their historical yield range.
47
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
In the investment manager's opinion, this subset of higher-yielding stocks
identified by applying these criteria offers the potential for returns over time
that are greater than or equal to the S&P 500, at less risk than this market
index. The investment manager believes these favorable risk and return
characteristics exist because the higher dividends offered by these stocks may
act as a "cushion" when markets are volatile and because stocks with higher
yields tend to sell at more attractive valuations (e.g., lower price-to-earning
ratios and lower price-to- book ratios).
Once this subset of higher-yielding stocks is identified, the investment manager
conducts a fundamental analysis of each company's financial strength,
profitability, projected earnings, sustainability of dividends, competitive
outlook, and ability of management. The fund's portfolio may include stocks that
are out of favor in the market, but which, in the opinion of the investment
manager, offer compelling valuations and potential for long-term appreciation in
price and dividends.
In order to diversify the fund's portfolio among different industry sectors, the
investment manager evaluates how each sector reacts to broad economic factors
such as interest rates, inflation, Gross Domestic Product, and consumer
spending. The fund's portfolio is constructed by attaining a proper balance of
stocks in these sectors based on economic forecasts.
The fund has a disciplined criteria for selling stocks as well. When the
investment manager determines that the relative yield of a stock has declined
excessively below the yield of the S&P 500, or that the yield is at the lower
end of the stock's historic range, the stock generally is sold from the fund's
portfolio. Similarly, if the investment manager's fundamental analysis
determines that the payment of the stock's dividend is at risk, or that market
expectations for the stock are unreasonably high, the stock is generally
targeted for sale.
In summary, the investment manager applies disciplined buy and sell criteria,
fundamental company and industry analysis, and economic forecasts in managing
the fund to pursue long-term price appreciation and income with a tendency for
lower overall volatility than the market, as measured by the S&P 500.
48
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Although not principal investments, the fund may invest in other types of
securities, including securities that do not pay current dividends but that
offer prospects for growth of capital and future income, securities of real
estate investment trusts, preferred stocks, convertible securities zero coupon
securities, illiquid securities, SPDRs and DIAMONDS, and repurchase agreements
and may engage in securities lending. It may also in derivatives, such as
options and futures. Derivatives, which are primarily used to hedge the fund's
performance, are financial instruments whose value derives from another security
or index.
From time to time, the fund may invest without limit in cash and cash
equivalents for temporary defensive purposes. Defensive investments should serve
to lessen volatility in an adverse stock market, although they also generate
lower returns than stocks in most markets. Because this defensive policy differs
from the fund's investment objective, the fund may not achieve its goals during
a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities with attractive valuations differs
from the investment approach followed by many other mutual funds. These
companies tend to have lower price-to-earnings ratios or price-to-book ratios.
It is the investment manager's belief, however, that the securities of sound,
well-managed companies that may be temporarily out of favor due to earnings
declines or other adverse developments are likely to provide a greater total
investment return than securities whose prices appear to reflect anticipated
favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
49
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Financial highlights
To Be Updated
50
<PAGE>
KEMPER VALUE FUND
Investment objective and strategies
Kemper Value Fund seeks long-term growth of capital through investment in
undervalued equity securities. The fund's investment objective and policies may
be changed without a vote of shareholders. This prospectus contains information
regarding Class A, B and C shares of the fund.
The fund invests in the securities of companies that the investment manager
believes are undervalued in the marketplace in relation to current and estimated
future earnings and dividends. These companies generally sell at price-earnings
ratios below the market average, as defined by the Standard & Poor's Corporation
500 Composite Price Index.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
51
<PAGE>
KEMPER VALUE FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
52
<PAGE>
KEMPER VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _____.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
53
<PAGE>
KEMPER VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- ---------------------------------------------------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests at least 80% of its assets in equity securities, primarily
those of medium- to large-sized domestic companies with annual revenues or
market capitalization of at least $600 million. The investment manager uses
in-depth fundamental research and a proprietary computerized quantitative model
to identify companies that are currently undervalued in relation to current and
estimated future earnings and dividends. The investment process also involves an
assessment of business risk, including analysis of:
o the strength of a company's balance sheet
o the accounting practices a company follows
o the volatility of a company's earnings over time
o and the vulnerability of earnings to changes in external factors, such as
the general economy, the competitive environment, governmental action, and
technological change.
While a broad range of investments is considered, those that, in the investment
manager's opinion, are selling at comparatively large discounts to intrinsic
value are purchased for the fund. It is anticipated that the prices of the
fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.
54
<PAGE>
KEMPER VALUE FUND
The fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The investment
manager's proprietary computer-based valuation model was developed and tested
over several years before being first implemented in 1987. In addition to
identifying undervalued securities, the quantitative model also provides the
discipline required to identify and sell appreciated securities as their prices
rise to reflect their earnings potential. The model relies on independent equity
research efforts for estimates of future earnings and dividend growth and
proprietary quality ratings, an important measure of risk. The investment
manager maintains one of the largest equity research departments in the industry
and has done so for more than 60 years.
Although not principal investments, the fund may invest in other types of
securities, including convertible securities, securities of foreign companies,
up to 20% of its assets in debt obligations, those rated below investment grade,
zero coupon securities and commercial paper, may enter into repurchase
agreements and reverse repurchase agreements, purchase illiquid securities. It
may also in derivatives, such as options and futures. Derivatives, which are
primarily used to hedge the fund's performance, are financial instruments whose
value derives from another security or index.
From time to time, the fund may invest without limit in cash and cash
equivalents for temporary defensive purposes. Defensive investments should serve
to lessen volatility in an adverse stock market, although they also generate
lower returns than stocks in most markets. Because this defensive policy differs
from the fund's investment objective, the fund may not achieve its goals during
a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
55
<PAGE>
KEMPER VALUE FUND
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
56
<PAGE>
KEMPER VALUE FUND
Financial highlights
To Be Updated
57
<PAGE>
Investment Manager
The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide. It manages more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Each fund pays Scudder Kemper Investments a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are show below:
(reflect K-D IMA arrrangement)
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
* Add footnotes as needed for expense caps.
Dreman Value Management, L.L.C., 10 Exchange Place, New Jersey, is the
sub-adviser for the Kemper-Dreman High Return Equity Fund and Kemper-Dreman
Financial Services Fund. Founded in 1977, Dreman Value Management, L.L.C.
manages over $4 billion in assets.
Portfolio management
The following investment professionals are associated with the funds as
indicated:
Kemper Contrarian Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
58
<PAGE>
Thomas Sassi, 1997 Joined Scudder Kemper in 1996. He
Lead Manager began his investment career in 1971.
Frederick L. Gaskin, 1997 Joined Scudder Kemper in 1996. He
Portfolio Manager began his investment career in 1986.
- --------------------------------------------------------------------------------
59
<PAGE>
Kemper-Dreman High Return Equity Fund
Kemper-Dreman Financial Services Fund
<TABLE>
<CAPTION>
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
<S> <C> <C>
David N. Dreman, 1988 Chairman of Dreman Value Management,
Portfolio Manager L.L.C. since 1977. He is a pioneer of
the philosophy of contrarian investing
(buying what is out of favor) and a
leading proponent of the low P/E
investment style. He is a columnist
for Forbes and the author of several
books on the value style of
investing. He began his investment
career in 1957.
- -----------------------------------------------------------------------------------
Kemper Small Cap Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Thomas H. Forester, 1997 Joined Scudder Kemper in 1997. He
Co-Lead Manager began his investment career in 1988.
Steven T. Stokes, 1997 Joined Scudder Kemper in 1996. He
Co-Lead Manager began his investment career in 1986.
- -----------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
James M. Eysenbach, 1998 Joined Scudder Kemper in 1986. He
Lead Portfolio began his investment career in 1984.
Manager
Philip S. Fortuna, 1998 Joined Scudder Kemper in 1991. He
Portfolio Manager began his investment career in 1984.
Calvin Young, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in 1988.
- -----------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Lori J. Ensinger, 1998 Joined Scudder Kemper in 1993. She
Lead Portfolio began her investment career in 1983.
Manager
Robert T. Hoffman, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in 1985.
Benjamin W. 1998 Joined Scudder Kemper in 1983. He
Thorndike, began his investment career in 1980.
Portfolio Manager
- -----------------------------------------------------------------------------------
60
<PAGE>
Kemper Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Donald E. Hall, 1992 Joined Scudder Kemper in 1982. He
Lead Portfolio began his investment career in 1982.
Manager
William J. Wallace, 1992 Joined Scudder Kemper in 1987. He
Portfolio Manager began his investment career in 1981.
- -----------------------------------------------------------------------------------
</TABLE>
Year 2000 Readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund rely,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations. The investment manager has commenced a review of the Year 2000 Issue
as it may affect the funds and is taking steps it believes are reasonably
designed to address the Year 2000 Issue, although there can be no assurances
that these steps will be sufficient. In addition, there can be no assurances
that the Year 2000 Issue will not have an adverse effect on the companies whose
securities are held by a fund or on global markets or economies generally.
61
<PAGE>
ABOUT YOUR INVESTMENT
Choosing a share class
Each fund provides investors with the option of purchasing shares in the
following ways:
<TABLE>
<S> <C>
Class A Shares Offered at net asset value plus a maximum sales charge of
5.75% of the offering price. Reduced sales charges apply to
purchases of $50,000 or more. Class A shares purchased at net
asset value under the Large Order NAV Purchase Privilege may
be subject to a 1% contingent deferred sales charge if re
deemed within one year of purchase and a .50% contingent
deferred sales change if redeemed during the second year of
purchase.
Class B Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions made
within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a 1% contingent deferred sales
charge on redemptions made within one year of purchase.
Class C shares do not convert into another class.
</TABLE>
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about the three sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
62
<PAGE>
Special features
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy").
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
63
<PAGE>
Buying shares
Class A Shares
<TABLE>
<CAPTION>
Public Amount of Purchase Sales Charge Sales Charge as
Offering Price. as a % of a % of Net
Including Sales Offering Price Amount Invested
Charge -------------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.75%
$50,000 but less than $100,000 4.50
$100,000 but less than $250,000 3.50
$250,000 but less than $500,000 2.60
$500,000 but less than $1 million 2.00
$1 million and over 0.00**
</TABLE>
**Redemption of shares may be subject to a contingent deferred
sales charge as discussed below.
<TABLE>
<CAPTION>
NAV Purchases Class A shares of a fund may be purchased at net asset value by:
<S> <C>
o shareholders in connection with the investment or
reinvestment of income and capital gain dividends
o a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation
plan or a participant-directed qualified retirement plan
which is not sponsored by a K-12 school district, provided
in each case that such plan has not less than 200 eligible
employees
o any purchaser with Kemper Funds investment totals of at least
$1,000,000
o unitholders of unit investment trusts sponsored by Ranson &
Associates, Inc. or its predecessors through reinvestment
programs described in the prospectuses of such trusts that
have such programs
o officers, trustees, directors, employees (including
retirees) and sales representatives of a fund, its
investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their
families
o persons who purchase shares through bank trust departments
that process such trades through an automated, integrated
mutual fund clearing program provided by a third party
clearing firm
o registered representatives and employees of broker-dealers
having selling group agreements with Kemper Distributors
o officers, directors, and employees of service agents of the
funds
o members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et. al., Case No. 93 C 5231 (N.D.IL)
o selected employees (including their spouses and dependent
children) of banks and other financial services firms that
provide administrative services related to the funds
pursuant to an agreement with Kemper Distributors or one of
its affiliates
o certain professionals who assist in the promotion of Kemper
Funds pursuant to personal services contracts with Kemper
Distributors, for themselves or members of their families
o in connection with the acquisition of the assets of or
merger or consolidation with another investment company
64
<PAGE>
Class A Shares (cont.)
o shareholders who owned shares of Kemper Value Series, Inc.
("KVS") on September 8, 1995, and have continuously owned
shares of KVS (or a Kemper Fund acquired by exchange of KVS
shares) since that date, for themselves or members of their
families
o any trust, pension, profit-sharing or other benefit plan for
only such persons.
o persons who purchase shares of the fund through Kemper
Distributors as part of an automated billing and wage
deduction program administered by RewardsPlus of America
o through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial services
firms that adhere to certain standards established by Kemper
Distributors, including a requirement that such shares be sold
for the benefit of their clients participating in an investment
advisory program under which such clients pay a fee to the
investment advisor or other firm for portfolio management and
other services. Such shares are sold for investment purposes
and on the condition that they will not be resold except
through redemption or repurchase by the funds
Contingent A contingent deferred sales charge may be imposed upon redemption
Deferred Sales of Class A shares purchased under the Large Order NAV Purchase
Charge Privilege as follows: 1% if they are redeemed within one year of
purchase and .50% if redeemed during the second year following
purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a
maximum of 10% per year of the net asset value of the account
o redemption of shares of a shareholder (including a registered
joint owner) who has died
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration)
o redemptions by a participant-directed qualified retirement
plan or a participant-directed non-qualified deferred
compensation plan or a participant-directed qualified
retirement plan which is not sponsored by a K-12 school
district
o redemptions by employer sponsored employee benefit plans
using the subaccount record keeping system made available
through the Shareholder Service Agent
o redemptions of shares whose dealer of record at the time of
the investment notifies Kemper Distributors that the dealer
waives the commission applicable to such Large Order NAV
Purchase
Distribution Fee None
Exchange Class A shares may be exchanged for each other at their relative
Privilege net asset values. Shares of Money Market Funds and Kemper Cash
Reserves Fund acquired by purchase (not including shares
acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange
Class A shares purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of any Kemper
Fund or a Money Market Fund without paying any contingent
deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed
65
<PAGE>
Class B Shares
Public Offering Net asset value per share without any sales charge at the time of purchase
Price
Contingent A contingent deferred sales charge may be imposed upon redemption
Deferred Sales of Class B shares. There is no such charge upon redemption of any
Charge share appreciation or reinvested dividends. The charge is computed
at the following rates applied to the value of the shares redeemed
excluding amounts not subject to the charge.
Year of Redemption First Second Third Fourth Fifth Sixth
After Purchase:
--------------------------------------------------------------------
Contingent Deferred 4% 3% 3% 2% 2% 1%
Sales Charge:
--------------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions to satisfy required minimum distributions after
age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the
shareholder's Kemper IRA accounts)
o for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic
payments described in Code Section 72(t)(2)(A)(iv) prior to
age 59 1/2
o for redemptions made pursuant to a systematic withdrawal
plan (see "Special Features -- Systematic Withdrawal Plan"
below)
o in the event of the total disability (as evidenced by a
determination by the federal Social Security Administration)
of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed
o in the event of the death of the shareholder (including a
registered joint owner)
The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the
Shareholder Service Agent:
o redemptions to satisfy participant loan advances (note that
loan repayments constitute new purchases for purposes of the
contingent deferred sales charge and the conversion privilege)
o redemptions in connection with retirement distributions
(limited at any one time to 10% of the total value of plan
assets invested in a fund
o redemptions in connection with distributions qualifying under
the hardship provisions of the Code
o redemptions representing returns of excess contributions to
such plans
Distribution Fee 0.75%
Conversion Class B shares of a fund will automatically convert to Class A
Feature shares of the same fund six years after issuance on the basis of
the relative net asset value per share. Shares purchased
through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a pro rata
basis.
Exchange Class B shares of a fund and Class B shares of most Kemper Funds
Privilege may be exchanged for each other at their relative net asset values
without a contingent deferred sales charge.
66
<PAGE>
Class C Shares
Public
Offering Price Net asset value per share without any sales charge at the time of purchase
Contingent
Deferred A contingent deferred sales charge of 1% may be imposed upon
Sales Charge redemption of Class C shares redeemed within one year of
purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions by a participant-directed qualified
retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation
plan described in Code Section 457
o redemptions by employer sponsored employee benefit plans
(or their participants) using the subaccount record
keeping system made available through the Shareholder
Service Agent
o redemption of shares of a shareholder (including a
registered joint owner) who has died
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by
a determination by the federal Social Security
Administration)
o redemptions under a fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the
account
o redemption of shares by an employer sponsored employee
benefit plan that offers funds in addition to Kemper
Funds and whose dealer of record has waived the advance
of the first year administrative service and
distribution fees applicable to such shares and agrees
to receive such fees quarterly
o redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on
an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year
administrative services and distribution fees applicable
to such shares and has agreed to receive such fees
quarterly
Distribution Fee 0.75%
Conversion Feature None
Exchange Privilege Class C shares of a fund and Class C shares of
most Kemper Funds may be exchanged for each other at their
relative net asset values. Class C shares may be exchanged
without a contingent deferred sales charge.
</TABLE>
67
<PAGE>
Selling and exchanging 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.
Share certificates
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. 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.
Repurchases (confirmed redemptions)
A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to Kemper Distributors, which
each fund has authorized to act as its agent. There is no charge by Kemper
Distributors with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
68
<PAGE>
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time.
Distributions and taxes
Dividends and capital gains distributions
Kemper Contrarian Fund, Kemper U.S. Growth and Income Fund and Kemper High
Return Equity Fund normally distribute quarterly dividends of net investment
income. Kemper Small Cap Value Fund, Kemper Small Cap Relative Value Fund and
Kemper Value Fund normally distribute annual dividends of net investment income.
The Kemper-Dreman Financial Services Fund normally distributes dividends of net
investment income semi-annually. Each fund distributes any net realized
short-term and long-term capital gains at least annually.
Income and capital gain dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder Service Agent, you may choose to have dividends of a fund invested
in shares of the same class of another Kemper fund at the net asset value of
that class and fund. To use this privilege, you must maintain a minimum account
value of $1,000 in the fund distributing the dividends. The funds will reinvest
dividend checks (and future dividends) in shares of that same fund and class if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.
69
<PAGE>
Taxes
Generally, dividends from net investment income are taxable to you as ordinary
income. Long-term capital gains distributions, if any, are taxable to you as
long-term capital gains, regardless of how long you have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
to you as ordinary income. A portion of dividends from ordinary income may
qualify for the dividends-received deduction for corporations.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss which may be long-term or short term, generally depending on how long
you owned the shares. Shareholders of a fund may be subject to state, local and
foreign taxes on fund distributions and dispositions of fund shares. You should
consult your tax advisor regarding the particular tax consequences of an
investment in a fund.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to the shareholder.
The fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Transaction information
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. eastern time, on each day the NYSE is open for trading.
Market prices are used to determine the value of the funds' assets, but when
reliable market quotations are unavailable, a fund may use procedures
established by its Board of Trustees.
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the fund will generally be lower than that of the Class A shares of a fund
because of the higher annual expenses borne by the Class B and Class C shares.
70
<PAGE>
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the NYSE are executed
at the net asset value per share calculated at the close of trading that day
(subject to any applicable sales load or contingent deferred sales charge).
Orders received by dealers or other financial services firms prior to the
determination of net asset value and received by the funds' transfer agent prior
to the close of its business day will be confirmed at a price based on the net
asset value effective on that day. If an order is accompanied by a check drawn
on a foreign bank, funds must normally be collected before shares will be
purchased.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain one from most brokerage houses and financial
institutions, although not from a notary public. The funds will normally send
you the proceeds within one business day following your request, but may take up
to seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price.
The funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
fund may temporarily suspend the offering of its shares or a class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders normally are permitted to continue to purchase additional shares
and to have dividends reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an 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.
71
<PAGE>
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' transfer agent,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
("redemption in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges.
72
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the funds'
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
---------------------------------------------------------------------------
By Phone: In Person:
---------------------------------------------------------------------------
Call Kemper at: Public Reference Room
1-800-621-1048 Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
---------------------------------------------------------------------------
By Mail: By Internet:
---------------------------------------------------------------------------
Kemper Distributors, Inc. http://www.sec.gov
222 South Riverside Plaza http://www.kemper.com
Chicago, IL 60606-5808
or
Public Reference Section, Securities
and Exchange Commission, Washington,
D.C. 20549-6009
(a duplication fee is charged)
---------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
<TABLE>
<S> <C> <C>
Kemper Contrarian Fund 811-XXX Kemper Small Cap Relative Value 811-XXX
Fund
Kemper-Dreman High Return Equity 811-XXX Kemper U.S. Growth and Income Fund 811-XXX
Fund
Kemper Small Cap Value Fund 811-XXX Kemper Value Fund 811-XXX
Kemper-Dreman Financial Services Fund
</TABLE>
73
<PAGE>
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
(Recycled Logo) printed on recycled paper
Kemper
U.S. Growth and Income Fund
February 1, 1999
KEMPER FUNDS LOGO
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
KEMPER U.S. GROWTH AND INCOME FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Kemper U.S. Growth and Income Fund (the
"Fund"), a diversified series of Kemper Securities Trust (the "Trust"), an
open-end management investment company. It should be read in conjunction with
the prospectus of the Fund dated February 1, 1999 . The prospectus may be
obtained without charge from the Fund at the address or telephone number on this
cover or the firm from which this Statement of Additional Information was
received and is also available along with other related materials on the SEC's
Internet web site (http://www.sec.gov).
---------------
TABLE OF CONTENTS
Page
----
Investment Restrictions............. ____
Investment Policies and Techniques.. ____
Portfolio Transactions.............. ____
Investment Manager and Underwriter.. ____
Purchase, Repurchase and Redemption ____
of Shares...........................
Net Asset Value..................... ____
Dividends, Distributions and Taxes.. ____
Performance......................... ____
Officers and Trustees............... ____
Shareholder Rights.................. ____
Scudder Kemper Investments, Inc. (the "Advisor") serves as the Fund's investment
manager. The financial statements appearing in the Fund's 1998 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
accompanies this Statement of Additional Information.
(RECYCLED LOGO) printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a "majority" of its outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's shares present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the Fund's outstanding shares.
The Fund may not, as a fundamental policy:
1. borrow money, except as permitted under the 1940 Act and as interpreted or
modified by regulatory authority having jurisdiction from time to time;
2. issue senior securities, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time;
3. purchase physical commodities or contracts relating to physical
commodities;
4. engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities;
5. purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities;
6. make loans except as permitted under the 1940 Act and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
7. concentrate its investments in a particular industry, as that term is used
in the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
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.
[TO BE UPDATED: 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 Fund may not:
i. borrow money in an amount greater than 5% of its total assets, except
(i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Fund's registration statement which may
be deemed to be borrowings;
ii. enterinto either of reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets;
iii. purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage transactions,
(iii) for margin deposits in connection with futures contracts,
options or other permitted investments, (iv) that transactions in
futures contracts and options shall not be deemed to constitute
selling securities short, and (v) that the Fund may obtain such
short-term credits as may be necessary for the clearance of securities
transactions;
<PAGE>
iv. purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
v. enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit;
vi. purchase warrants if as a result, such securities, taken at the lower
of cost or market value, would represent more than 5% of the value of
the Fund's total assets (for this purpose, warrants acquired in units
or attached to securities will be deemed to have no value); and
vii. lend portfolio securities in an amount greater than 30% of its total
assets.
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.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The objectives of Kemper U.S. Growth and Income Fund are to provide
long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks and securities convertible
into common stocks of U.S. companies which offer the prospect for growth of
earnings while paying current dividends. The Fund may engage in futures, options
and other derivative transactions ("Strategic Transactions and Derivatives") in
accordance with its investment objective and policies. The Fund intends to
engage in such transactions if it appears to the AdvisorAdvisor to be
advantageous for the Fund to do so, in order to pursue its investment
objectives, to hedge against the effects of fluctuating interest rates and to
stabilize the value of its assets, and not for speculation. The use of futures
and options, and possible benefits and attendant risks, are discussed below,
along with information concerning certain other investment policies and
techniques.
From time to time, for temporary defensive purposes, when the Advisor feels such
a position is advisable in light of economic or market conditions, the Fund may
invest all or a portion of its assets in cash and cash equivalents. It is
impossible to accurately predict for how long such alternative strategies will
be utilized.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of such securities' conversion or exchange
features.
The convertible securities in which the Fund may invest include fixed-income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying
3
<PAGE>
common stock, although typically not as much as the underlying common stock.
While no securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of the
same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed-income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
LENDING OF PORTFOLIO SECURITIES. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions and are required to be secured
continuously by collateral in cash and liquid assets maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice. During the existence of a loan, the Fund
will continue to receive the equivalent of any distributions paid by the issuer
on the securities loaned and will also receive compensation based on investment
of the collateral. The risks in lending securities, as with other extensions of
secured credit, consist of a possible delay in recovery or even a loss of rights
in the collateral should the borrower of the securities fail financially. Loans
will only be made to firms deemed by the Advisor to be in good standing, and
will not be made unless, in the judgment of the Advisor, the consideration to be
earned from such loans would justify the risk. The value of the securities
loaned will not exceed 30% of the value of a Fund's total assets at the time any
loan is made.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Advisor to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a debt security ("Obligation") and the seller agrees,
at the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund, together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation, subject to the repurchase agreement,
and is, therefore, subject to the Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter
4
<PAGE>
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Advisor seeks to minimize
the risk of loss through repurchase agreements by analyzing the creditworthiness
of the obligor, in this case the seller of the Obligation, in which case the
Fund may incur a loss if the proceeds to the Fund of the sale to a third party
are less than the repurchase price. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security. However, if the market value of the Obligation subject
to the repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in REITs. REITs are sometimes
informally characterized as equity REITs, mortgage REITs and hybrid REITs.
Investment in REITs may subject the Fund to risks associated with the direct
ownership of real estate, such as decreases in real estate values, overbuilding,
increased competition and other risks related to local or general economic
conditions, increases in operating costs and property taxes, changes in zoning
laws, casualty or condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental income. Equity REITs
generally experience these risks directly through fee or leasehold interests,
whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate. Changes in interest rates may also affect the value of the Fund's
investment in REITs. For instance, during periods of declining interest rates,
certain mortgage REITs may hold mortgages that the mortgagors elect to prepay,
which prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
Illiquid SECURITIES. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid securities. Disposing of illiquid securities may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Fund to sell them promptly at an acceptable price. The Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Advisor may at times
play a greater role in valuing these securities than in the case of illiquid
securities.
Generally speaking, restricted securities may be sold in the U.S. only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount,
5
<PAGE>
comes from the difference between the issue price and their value at maturity.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon securities which are
convertible into common stock offer the opportunity for capital appreciation as
increases (or decreases) in the market value of such securities closely follow
the movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S.
Government securities.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
STRATEGIC TRANSACTIONS AND DERIVATIVES. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
the fixed-income securities in the Fund's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there
6
<PAGE>
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Advisor's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
price movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures and options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an increase
in value of such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential financial risk than
would purchases of options, where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses can be greater than
if the Strategic Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts,
7
<PAGE>
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Advisor must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO). The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, corporate debt securities,
equity securities (including convertible securities) and Eurodollar instruments
(whether or not it holds the above securities in its portfolio), and on
securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment
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of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount
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based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Advisor
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Advisor.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument. In
general, either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
required to be delivered, or, subject to any regulatory restrictions, an amount
of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, or with an election of either physical delivery or cash
settlement and the Fund will segregate an amount of assets equal to the full
value of the option. OTC options settling with physical delivery, or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
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Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund may also invest in Standard and Poor's Depository Receipts ("SPDRs")
and DIAMONDS. SPDRs and DIAMONDS should typically trade like a share of common
stock and provide investment results that generally correspond to the price and
yield performance of the component common stocks of the S&P 500 Index and Dow
Jones Industrial Average, respectively. There can be no assurance, however, that
this can be accomplished as it may not be possible for the SPDRs or DIAMONDS, as
applicable, portfolio to replicate the composition and relative weightings of
the securities of the respective indices. SPDRs and DIAMONDS are subject to the
risks of an investment in a broadly based portfolio of large-capitalization
common stocks, including the risk that the general level of stock prices may
decline, thereby adversely affecting the value of such investment. SPDRs and
DIAMONDS are also subject to risks other than those associated with an
investment in such a broadly based portfolio in that the selection of the stocks
included in the SPDRs or DIAMONDS, as applicable, portfolio may affect trading
in SPDRs and DIAMONDS, as compared with trading in a broadly based portfolio of
common stocks. In addition, there can be no assurance that that SPDRs and
DIAMONDS will experience similar trading patterns nor that an active trading
market for DIAMONDS will develop.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage is supervised by the Advisor. The primary objective of
the Advisor in placing orders for the purchase and sale of securities for the
Fund is to obtain the most favorable net results, taking into account such
factors as price, commission where applicable, size of order, difficulty of
execution and skill required of the executing broker/dealer. The Advisor seeks
to evaluate the overall reasonableness of brokerage commissions paid (to the
extent applicable) through the familiarity of the Distributor with commissions
charged on comparable transactions, as well as by comparing commissions paid by
a Fund to reported commissions paid by others. The Advisor reviews on a routine
basis commission rates, execution and settlement services performed, making
internal and external comparisons.
The Fund's purchases and sales of fixed income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research and market statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchases or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Advisor is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Advisor may place
orders with broker/dealers on the basis that the broker/dealer has or has not
sold shares of a Fund. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available elsewhere.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor, the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
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Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements the Advisor's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than the Fund, and not all such information is used by
the Advisor in connection with the Fund. Conversely, such information provided
to the Advisor by broker/dealers through whom other clients of the Advisor
effect securities transactions may be useful to the Advisor in providing
services to the Fund.
The Trustees review from time to time whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable
The table below shows total brokerage commissions paid by the Fund for the
period of February 1, 1998 (commencement of operations) through September 30,
1998, and the percentage thereof that was allocated to firms based upon research
information provided.
[TO BE UPDATED]
Allocated to Firms
Based on Research in
Fund February 1, to February 1, to
September 30 1998 September 30 1998
U.S. Growth and Income To Be Updated To Be
Updated__%
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Advisor"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, the Advisor's predecessor
Scudder, Stevens & Clark ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which the predecessor and Zurich agreed
to form an alliance.
Pursuant to the investment management agreement, the Advisor acts as the Fund's
investment advisor, 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 directors or officers of the Fund if elected to such
positions. The investment management agreement provides that the Fund shall pay
the charges and expenses of its operations, including the fees and expenses of
the trustees (except those who are affiliates of the Advisor), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records thereto, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the SEC while Kemper Distributors,
Inc. ("KDI"), as principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.
The Advisor maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Advisor utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Fund and for clients of the Advisor,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for the Fund and also for other clients
advised by the Advisor. Investment decisions for the Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
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particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to the Fund.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in the Advisor) and the financial services businesses of B.A.T Industries p.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services, Inc. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services, Inc., with the balance initially owned by former
B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment management
agreement with the Advisor was deemed to have been assigned and, therefore,
terminated. The Board approved a new investment management agreement with the
Advisor, which is substantially identical to the investment management agreement
dated January 30, 1998, except for the dates of execution and termination. This
agreement became effective on September 7, 1998 and was approved at a special
shareholder meeting held on [December 15, 1998.]
The Agreement dated September 7, 1998 was approved by the Trustees on [August 6,
1998] and ratified on [September 15, 1998]. The Agreement will continue in
effect until September 30, 1999 and from year to year thereafter only if their
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Advisor or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' notice and
automatically terminates in the event of its assignment.
Under the Agreement, the Advisor provides the Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested, subject always to the provisions of the Trust's Declaration of Trust
and By-Laws, the 1940 Act and the Code and to the Fund's investment objectives,
policies and restrictions and subject, further, to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Advisor also advises and assists the officers of the Trust in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Fund.
The Advisor also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Advisor pays the compensation and expenses of all Trustees, officers and
executive employees of the Trust affiliated with the Advisor and makes
available, without expense to the Trust, the services of such Trustees, officers
and employees of the Advisor as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Trust's office space and facilities.
Under the Agreement the Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses;
13
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the calculation of net asset value; taxes and governmental fees; the fees and
expenses of the transfer agent; the cost of preparing stock certificates and any
other expenses including clerical expenses of issue, redemption or repurchase of
shares; the expenses of and the fees for registering or qualifying securities
for sale; the fees and expenses of Trustees, officers and employees of the Trust
who are not affiliated with the Advisor; the cost of printing and distributing
reports and notices to shareholders; and the fees and disbursements of
custodians. The Fund may arrange to have third parties assume all or part of the
expenses of sale, underwriting and distribution of shares of the Fund. The Fund
is also responsible for its expenses incurred in connection with litigation,
proceedings and claims and the legal obligation it may have to indemnify its
officers and Trustees with respect thereto.
The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
The Advisor receives an investment management fee for its services. The Fund
pays the Advisor an investment management fee, payable monthly, at the annual
rate of 0.60% for the first $250 million of average daily net assets, 0.57% of
such assets for the next $750 million, 0.55% of such assets for the next $1.5
billion and 0.53% of such assets in excess of $2.5 billion. The fee is graduated
so that increases in the Fund's net assets may result in a lower annual fee rate
and decreases in the Fund's net assets may result in a higher annual fee rate.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Advisor not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid. All of the Fund's
expenses are paid out of gross investment income. The investment management fee
paid by the Fund from February 1, 1998 (commencement of operations) to September
30, 1998 is $__.
In reviewing the terms of the Agreement and in discussions with the Advisor
concerning such Agreement, the Trustees of the Trust who are not "interested
persons" of the Trust have been represented by Vedder, Price, Kaufman &
Kammholz, as independent counsel at the Fund's expense.
The Agreement provides that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the Trust
as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Trust.
Employees of the Advisor and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Advisor's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
14
<PAGE>
15
<PAGE>
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, an affiliate of the Advisor, is the
principal underwriter and distributor for the shares of the Fund and acts as
agent of the Fund in the continuous offering of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI 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. KDI bears the cost of
registering or qualifying and maintaining the qualification of Fund shares for
sale and the Fund bears the expense of registering its shares with the SEC. KDI
may enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Trust, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The distribution agreement automatically terminates in the event of
its assignment and may be terminated for a class at any time without penalty by
the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect to
a class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the distribution agreement, or a "majority of
the outstanding voting securities" of the class of the Fund, as defined under
the 1940 Act. The distribution agreement may not be amended for a class to
increase the fee to be paid by the Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
distribution agreement. The provisions concerning the continuation, amendment
and termination of the distribution agreement are on a class by class basis.
Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of Class A Fund shares.
The following information concerns the underwriting commissions paid in
connection with the distribution of the Fund's Class A shares for the fiscal
years noted.
<TABLE>
<CAPTION>
Commissions Commissions KDI Commissions Paid to KDI
Class A Shares Fiscal Year Retained by KDI Paid to All Firms Affiliated Firms
- -------------- ----------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
U.S. Growth and Income February 1- To Be Updated
September 30, 1998
</TABLE>
Class B Shares. For its services under the Class B distribution plan, KDI
receives a fee from the Fund under the Rule 12-b Plan, payable monthly, at an
annual rate of 0.75% of average daily net assets of the Fund attributable to its
Class B shares. This fee is accrued daily as an expense of Class B shares. KDI
also receives any contingent deferred sales charges received on redemptions of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the Class C distribution plan, KDI
receives a fee from the Fund under the Rule 12b-1 Plan, payable monthly, at an
annual
16
<PAGE>
rate of 0.75% of average daily net assets of the Fund attributable to its Class
C shares. This fee is accrued daily as an expense of Class C shares. KDI
currently advances to firms the first year distribution fee at a rate of 0.75%
of the purchase price of such shares. For periods after the first year, KDI
currently intends to pay firms for sales of Class C shares a distribution fee,
payable quarterly, at an annual rate of 0.75% of net assets attributable to
Class C shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. KDI also receives any contingent deferred sales
charges received on redemptions of Class C shares. See "Redemption or Repurchase
of Shares--Contingent Deferred Sales Charge--Class C Shares."
Rule 12b-1 Plans. The Fund has adopted a plan under Rule 12b-1 that provides for
fees payable as expense of the Class B shares and Class C shares that are used
by KDI to pay for distribution and services for those classes. Because 12b-1
fees are paid out of fund assets on an ongoing basis, they will over time,
increase the cost of investment and may cost more than other types of sales
charges.
The table below shows amounts paid in connection with the Fund's Rule 12b-1 Plan
from February 1, 1998 (commencement of operations) to September 30, 1998:
<TABLE>
<CAPTION>
Distribution Distribution Contingent Deferred
Expenses Incurred Paid by Fund Sales Charges Paid
By Underwriter to Underwriter to Underwriter
<S> <C> <C> <C> <C> <C> <C>
Fund Class B Class C Class B Class C Class B Class C
U.S. Growth & Income To be Updated
</TABLE>
If the Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to the
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
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. A portion of the marketing,
sales and operating expenses shown below could be considered overhead expense:
[TO BE UPDATED]
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
Contingent Total Distribution
Deferred Distribution Paid by
Distribution Sales Fees Paid KDI to KDI Advertising Marketing Misc.
Fiscal Fees Paid by Charges by KDI to Affiliated and Prospectus and Sales Operating Interest
Year Fund to KDI Paid to KDI Firms Firms Literature Printing Expenses Expenses Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C
Class B Shares February To be
1, to updated
September
30
1998
Class C Shares February
1, to
September
30
1998
</TABLE>
17
<PAGE>
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of each of the Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A shares, KDI pays each firm a service fee, payable quarterly, at an
annual rate of up to 0.25% of the net assets in Fund accounts that it maintains
and services attributable to Class A shares, commencing with the month after
investment. With respect to Class B and Class C shares, KDI currently advances
to firms the first-year service fee at a rate of up to 0.25% of the purchase
price of such shares. For periods after the first year, KDI currently intends to
pay firms a service fee at a rate of up to 0.25% (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 may include affiliates
of KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which there is a firm of record, as well as,
with respect to Class A shares, the date when shares representing such assets
were purchased. In addition, KDI may, from time to time, from its own resources
pay certain firms additional amounts for ongoing administrative services and
assistance provided to their customers and clients who are shareholders of the
Fund. The Board of Trustees of the Fund, in its discretion, may approve basing
the fee to KDI on all Fund assets in the future.
Certain trustees or officers of the Trust are also directors or officers of the
Advisor or KDI, as indicated under "Officers and Trustees."
The following information concerns the administrative services fee paid by the
Fund:
[TO BE UPDATED]
Administrative Service Fees Paid by Fund
<TABLE>
<CAPTION>
Total Service Fees Service Fees Paid by KDI
Fund Fiscal Year Class A Class B Class C Paid by KDI to Firms to KDI Affiliated Firms
<S> <C> <C> <C> <C> <C> <C>
U.S. Growth and February 1 To be
18
<PAGE>
Administrative Service Fees Paid by Fund
Total Service Fees Service Fees Paid by KDI
Fund Fiscal Year Class A Class B Class C Paid by KDI to Firms to KDI Affiliated Firms
Income to updated
September
30, 1998
</TABLE>
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts, as custodian, has
custody of all securities and cash of the Fund. It attends to the collection of
principal and income, and payment for and collection of proceeds of securities
bought and sold by the Fund. Pursuant to an agency agreement with the Fund,
Kemper Service Company (the "Shareholder Servicing Agent"), a subsidiary of the
Advisor, serves as transfer agent and dividend-paying agent. Kemper Service
Company receives as transfer agent, and pays annual account fees of $6 per
account plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B shares only) and
out-of-pocket expense reimbursement. Kemper Service Company's fee is reduced by
certain earnings credits in favor of the Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the Funds and maintaining all accounting records related thereto. Currently,
SFAC receives an annual fee of __ of 1% of average daily net assets for its
services to the Funds.
PURCHASE AND REDEMPTION OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first and
second year following purchase, and do not convert into another class. When
placing purchase orders, investors must specify whether the order is for Class
A, Class B or Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived
5.75% of the public offering price or reduced for certain
purchases
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A
charge of 4% of redemption shares six years after
proceeds, declines to zero after issuance
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
19
<PAGE>
of 1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
Allowed to
Dealers as a
As a Percentage As a Percentage Percentage of
of Offering Price of Net Asset Value* Offering Price
Amount of Purchase
<S> <C> <C> <C> <C>
Less than $50,000................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000...................... 4.50 4.71 4.00
$100,000 but less than $250,000..................... 3.50 3.63 3.00
$250,000 but less than $500,000..................... 2.60 2.67 2.25
$500,000 but less than $1 million................... 2.00 2.04 1.75
$1 million and over................................. 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all of its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow 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 the Fund may be purchased at net asset value to the extent
that the amount invested represents the net proceeds from a redemption of shares
of a mutual fund for which the Advisor does not serve as investment manager and
KDI does not serve as Distributor ("non-Kemper Fund") provided that: (a) the
investor has previously paid either an initial sales charge in connection with
the purchase of the non-Kemper Fund shares redeemed or a contingent deferred
sales charge in connection with the redemption of the non-Kemper Fund shares,
and (b) the purchase of Fund shares is made within 90 days after the date of
such redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. 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. KDI may in its
discretion compensate firms for sales of Class A shares under this privilege at
a commission rate of 0.50% of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in the Fund or other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non- qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan
20
<PAGE>
described in Code Section 403(b)(7) which is not sponsored by a K-12 school
district provided in each case that such plan has not less than 200 eligible
employees (the "Large Order NAV Purchase Privilege"). Redemption within two
years of shares purchased under the Large Order NAV Purchase Privilege may be
subject to a contingent deferred sales charge. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedules, KDI will consider the cumulative amount invested by the purchaser in
the Fund and other Kemper Funds listed under "Special Features--Class A
Shares--Combined Purchases," including purchases pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features referred to
above. The privilege of purchasing Class A shares of the Fund at net asset value
under the Large Order NAV Purchase Privilege is not available if another net
asset value purchase privilege is also applicable.
Class A shares of the Fund or any other Kemper Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may at its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of the Fund
at net asset value under this privilege is not available if another net asset
value purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families: (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Fund, Inc. ("KVF") on September 8,
1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by
exchange of KVF shares) since that date, for themselves or members of their
families, (d) any trust or pension, profit-sharing or other benefit plan for
only such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; (f) persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund Class A shares may purchase Fund Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase the Fund's Class A shares at net asset value
through reinvestment programs described in the prospectuses and statements of
additional information of such trusts that have such programs. The Fund's Class
A shares may be sold at net asset value through certain investment advisors
registered under the 1940 Act and other financial services firms that adhere to
certain standards established by KDI, including a requirement that such shares
be sold for the benefit of their clients participating in an investment advisory
program under which such clients pay a fee to the investment advisor or other
firm for portfolio management and other services. Such shares are sold for
investment purposes and on the condition that they will not be resold except
through redemption or
21
<PAGE>
repurchase by the Fund. The Fund may also issue Class A shares at net asset
value in connection with the acquisition of the assets of or merger or
consolidation with another investment company, or to shareholders in connection
with the investment or reinvestment of income and capital gain dividends.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. Class B shareholders of the Fund 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 originally
representing Initial Shares of a KIP Portfolio will automatically convert to
Class A shares of the 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 paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
Purchase Of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
Which Arrangement Is Better For You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C
22
<PAGE>
shares for $500,000 or more will be declined. Orders for Class B shares or Class
C shares by employer sponsored employee benefit plans using the subaccount
record keeping system made available through the Shareholder Service Agent will
be invested instead in Class A shares at net asset value where the combined
subaccount value in the Fund or other Kemper Funds listed under "Special
Features--Class A Shares--Combined Purchases" is in excess of $5 million
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features described under "Special Features." For more
information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by KDI.
Orders for the purchase or redemption of shares of the Fund will be confirmed at
a price based on the net asset value of the Fund next determined after receipt
in good order by KDI of the order accompanied by payment. However, orders
received by dealers or other firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund 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
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services.
The Fund reserves the right to withdraw all or any part of the offering made by
this statement of additional information and to reject purchase orders for any
reason. Also, from time to time, the Fund may temporarily suspend the offering
of any class of its shares to
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new investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI"),
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced at the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees of the Fund and KDI each has the right to limit the amount of purchases
by, and to refuse to sell to, any person. The Board and KDI may suspend or
terminate the offering of shares of the Fund at any time for any reason.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the Fund with a tax identification
number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this statement of additional information.
Fund shares are sold at their public offering price, which is the net asset
value 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 for each class is $1,000 and the minimum subsequent investment is
$100 but such minimum amounts may be changed at any time. The Fund may waive the
minimum for purchases by trustees, directors, officers or employees of the Fund
or the Advisor and its affiliates. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described herein.
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 herein are provided because
of anticipated economies of scale in sales and sales-related efforts.
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The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described herein.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares") and the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge--Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge--Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of any 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
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<PAGE>
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 a signature guarantee subject to the same conditions as
individual account holders and subject to the limitations on liability described
under "General" above, provided that this privilege has been pre-authorized by
the institutional account holder or guardian account holder by written
instruction to the Shareholder Service Agent with signatures guaranteed.
Telephone requests may be made by calling 1-800-621-1048. Shares purchased by
check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed
under this privilege of redeeming shares by telephone request until such shares
have been owned for at least 10 days. This privilege of redeeming shares by
telephone request or by written request without a signature guarantee may not be
used to redeem shares held in certificated form and may not be used if the
shareholder's account has had an address change within 30 days of the redemption
request. During periods when it is difficult to contact the Shareholder Service
Agent by telephone, it may be difficult to use the telephone redemption
privilege, although investors can still redeem by mail. The Fund reserves the
right to terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if the Fund or
the Advisor deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Fund is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a participant-
directed qualified retirement plan described in Code Section 403(b)(7) which is
not sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under the Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
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of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies KDI that the dealer waives the commission applicable
to such Large Order NAV Purchase.
Contingent Deferred Sales Charge--Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (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 Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Code and (d) redemptions
representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper Fund IRA accounts); (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent; and (g) for redemption of shares by an employer
sponsored employee benefit plan that (i) offers funds in addition to Kemper
Funds (i.e., "multi-manager"), and (ii) whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
Contingent Deferred Sales Charge--General. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 in appreciation to a total of $12,000. If
the investor were then to redeem the entire $12,000 in share value, the
contingent deferred sales charge would be payable only with respect to $10,000
because neither the $1,000 of reinvested dividends nor the $1,000 of share
appreciation is subject to the charge.
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<PAGE>
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
January, 1998 will be eligible for the second year's charge if redeemed on or
after January 1, 1999. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or any
other Kemper 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"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in the same class of shares of
the Fund or of other Kemper Funds. The amount of any contingent deferred sales
charge also will be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge schedule. Also, a holder of Class B shares who has redeemed shares may
reinvest up to the full amount redeemed, less any applicable contingent deferred
sales charge that may have been imposed upon the redemption of such shares, at
net asset value in Class A shares of the Fund or of the other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features--Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of Fund shares, the reinvestment in shares of the Fund may be subject
to the "wash sale" rules if made within 30 days of the redemption, resulting in
a postponement of the recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time.
Redemption In Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Trustees may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash.
SPECIAL FEATURES
Class A Shares--Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper U.S. Growth and Income Fund, Kemper Global Blue Chip
Fund, Kemper International Growth and Income Fund, Kemper Emerging Markets
Income Fund, Kemper Emerging Markets Growth Fund, Kemper Latin America Fund,
Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper
Small Capitalization Equity Fund, Kemper Income and Capital Preservation Fund,
Kemper Municipal Bond Fund, Kemper Diversified Income Fund, Kemper High Yield
Series, Kemper U.S. Government Securities Fund, Kemper International Fund,
Kemper State Tax-Free Income Series, Kemper Adjustable Rate U.S. Government
Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target Equity
Fund (series are subject to a limited offering period), Kemper Intermediate
Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund,
Kemper Short-Intermediate Government Fund, Kemper Value Fund, Inc., Kemper
Value+Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper
Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth Fund ("Kemper
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, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
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)
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<PAGE>
Money Market Funds as "Kemper Funds," (b) all classes of shares of any Kemper
Fund and (c) the value of any other plan investments, such as guaranteed
investment contracts and employer stock, maintained on such subaccount record
keeping system.
Class A Shares--Letter Of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus or statement of additional
information, also apply to the aggregate amount of purchases of such Kemper
Funds listed above made by any purchaser within a 24-month period under a
written Letter of Intent ("Letter") provided by KDI. The Letter, which imposes
no obligation to purchase or sell additional Class A shares, provides for a
price adjustment depending upon the actual amount purchased within such period.
The Letter provides that the first purchase following execution of the Letter
must be at least 5% of the amount of the intended purchase, and that 5% of the
amount of the intended purchase normally will be held in escrow in the form of
shares pending completion of the intended purchase. If the total investments
under the Letter are less than the intended amount and thereby qualify only for
a higher sales charge than actually paid, the appropriate number of escrowed
shares are redeemed and the proceeds used toward satisfaction of the obligation
to pay the increased sales charge. The Letter for an employer sponsored employee
benefit plan maintained on the subaccount record keeping system available
through the Shareholder Service Agent may have special provisions regarding
payment of any increased sales charge resulting from a failure to complete the
intended purchase under the Letter. A shareholder may include the value (at the
maximum offering price) of all shares of such Kemper Funds held of record as of
the initial purchase date under the Letter as an "accumulation credit" toward
the completion of the Letter, but no price adjustment will be made on such
shares. Only investments in Class A shares of the Fund are included for this
privilege.
Class A Shares--Cumulative Discount. The Fund's Class A shares also may be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of Fund shares being purchased the value of all Class A shares of the
above mentioned Kemper Funds (computed at the maximum offering price at the time
of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares--Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and 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 or statement of additional information.
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investors Municipal Cash Fund and Investors Cash Trust are available on
exchange but only through a financial services firm having a services agreement
with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without any contingent deferred sales charge being
imposed at the time of exchange. For purposes of calculating the contingent
deferred sales charge that may be imposed upon the redemption of the Class B
shares received on exchange, retain the cost and purchase date of the shares
that were originally purchased and exchanged.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent
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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, the cost and purchase
date of the shares that were originally purchased and exchanged.
General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired through exchange from another Kemper Fund,
or from a Money Market Fund, may not be exchanged thereafter until they have
been owned for 15 days (the "15 Day Hold Policy"). For purposes of determining
whether the 15 Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, direction or advice,
including without limitation, accounts administered by a financial services firm
offering market timing, asset allocation or similar services. 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 implement the telephone exchange privilege. The exchange privilege
is not a right and may be suspended, terminated or modified at any time.
Exchanges may only be made for Kemper Funds that are eligible for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Investors Municipal Cash Fund
is available for sale only in certain states. Except as otherwise permitted by
applicable regulations, 60 days' prior written notice of any termination or
material change will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
Express-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional Fund shares through
an automatic investment program. With the Bank Direct Deposit Purchase Plan,
investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, 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
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become effective within thirty days after the Shareholder Service Agent has
received the request. The Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Fund may terminate or modify this privilege at any time.
Payroll Direct Deposit And Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in their Fund account each payment period. A
shareholder may terminate participation in these programs by giving written
notice to the shareholder's employer or government agency, as appropriate. (A
reasonable time to act is required.) The Fund is not responsible for the
efficiency of the employer or government agency making the payment or any
financial institutions transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares (and Class A shares purchased under the Large Order NAV Purchase
Privilege and Class C shares in the first year following the purchase) may be
redeemed under a systematic withdrawal plan is 10% of the net asset value of the
account. 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 ordinarily will 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 already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemption
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan For Employees of Small Employers
("SIMPLE") IRA accounts and Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be
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experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Trustees may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the Advisor may calculate the price of that debt security, subject to
limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee of the Trust's Board of
Trustee's, the value of a portfolio asset as determined in accordance with these
procedures does not represent the fair market value of the portfolio asset, the
value of the portfolio asset is taken to be an amount which, in the opinion of
the Valuation Committee, represents fair market value on the basis of all
available information. The value of other portfolio holdings owned by the Fund
is determined in a manner which, in the discretion of the Valuation Committee,
most fairly reflects the fair market value of the property on the valuation
date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be
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able to claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The Fund intends to distribute investment company taxable income, exclusive of
net short-term capital gains in excess of net long-term capital losses, in
March, June, September and December each year. The Fund intends to distribute
net realized capital gains after utilization of capital loss carryforwards, if
any, in December to prevent application of a federal excise tax. An additional
distribution may be made at a later date, if necessary. Additional
distributions, including distributions of net short-term capital gains in excess
of net long-term capital losses, may be made, if necessary.
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C shares than for Class A shares primarily as a result of
the distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same proportion for
each class.
Income and capital gains dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional Fund shares of the same class at net
asset value except that, upon written request to the Shareholder Service Agent,
a shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
Fund shares of the same class. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of the Fund invested
without sales charge in shares of the same class of another Kemper Fund at the
net asset value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account balance of $1,000 in the Fund
distributing the dividends. The Fund will reinvest dividend checks (and future
dividends) in shares of that same class of the Fund if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, generally will not be liable for
federal income taxes to the extent its earnings are distributed. To so qualify,
the Fund must satisfy certain income and asset diversification requirements, and
must distribute to its shareholders at least 90% of its investment company
taxable income (including net short-term capital gain). Distributions of
investment company taxable income are taxable to shareholders as ordinary
income.
The Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
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Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income. If any net realized long-term capital gains in excess of net
realized short-term capital losses are retained by the Fund for reinvestment,
requiring federal income taxes to be paid thereon by the Fund, the Fund intends
to elect to treat such capital gains as having been distributed to shareholders.
As a result, each shareholder will report such capital gains as long-term
capital gains, will be able to claim a relative share of federal income taxes
paid by the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such gains reported and the individual tax
credit.
Dividends from domestic corporations are expected to comprise a substantial part
of the Fund's gross income. To the extent that such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholder,
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options on portfolio stock) written or
purchased by the Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend, in the
case of a lapse or sale of the option, on the Fund's
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holding period for the option and, in the case of an exercise of the option, on
the Fund's holding period for the underlying security. The purchase of a put
option may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or substantially
identical security in the Fund's portfolio. If the Fund writes a call option, no
gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as a short-term capital gain or loss. If
a call option is exercised, any resulting gain or loss is short-term or
long-term capital gain or loss depending on the holding period of the underlying
security. The exercise of a put option written by the Fund is not a taxable
transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of the Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under certain circumstances, entry into a futures
contract to sell a security may constitute a short sale for federal income tax
purposes, causing an adjustment in the holding period of the underlying security
or a substantially identical security in the Fund's portfolio.
Positions of the Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments.. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
If the Fund holds zero coupon securities or other securities which are issued at
a discount a portion of the difference between the issue price and the face
value of such securities ("original issue discount") will be treated as income
to the Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the investment company taxable income of the Fund which
must be distributed to shareholders in order to maintain the qualification of
the Fund as a regulated investment company and to avoid federal income tax at
the Fund level. If the Fund acquires a debt instrument at a market discount, a
portion of the gain recognized (if any) on disposition of such instrument may be
treated as ordinary income.
The Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification
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numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if the Fund is notified
by the IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may be long-term or short-term depending upon the shareholder's holding
period for the shares. A shareholder who has redeemed shares of the Fund or any
other Kemper Mutual Fund listed herein under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described herein under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of the same Fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of the Fund's shares for shares of another fund
is treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
the Fund continues to be treated as a regulated investment company under
Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders of the Fund may be subject to state, local and foreign taxes on
Fund distributions and dispositions of Fund shares.
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<PAGE>
Retirement Plans
Shares of the Fund may be purchased as an investment in a number of kinds of
retirement plans, including qualified pension, profit sharing, money purchase
pension, and 401(k) plans, Code Section 403(b) custodial accounts, and
individual retirement accounts.
One of the tax-deferred retirement plan accounts that may hold Fund shares is an
individual retirement account ("IRA"). There are three kinds of IRAs that an
individual may establish: traditional IRAs, Roth IRAs and education IRAs. With a
traditional IRA, an individual may be able to make a deductible contribution of
up to $2,000 or, if less, the amount of the individual's earned income for any
taxable year prior to the year the individual reaches 70 1/2 if neither the
individual nor his or her spouse is an active participant in an employer's
retirement plan. An individual who is (or who has a spouse who is) an active
participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that year. One
spouse also may contribute up to $2,000 per year to the other spouse's own IRA,
even if the other spouse has earned income of less than $2,000, as long as the
spouses' joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan, may be rolled over into a
traditional IRA also.
With a Roth IRA, an individual may make only non-deductible contributions;
contributions can be made of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year, but only if the individual's
(and spouse's, if applicable) adjusted gross income for the year is less than
$95,000 for single individuals or $150,000 for married individuals. The maximum
contribution amount phases out and falls to zero between $95,000 and $110,000
for single persons and between $150,000 and $160,000 for married persons.
Contributions to a Roth IRA may be made even after the individual attains age 70
1/2. Distributions from a Roth IRA that satisfy certain requirements will not be
taxable when taken; other distributions of earnings will be taxable. An
individual with adjusted gross income of $100,000 or less generally may elect to
roll over amounts from a traditional IRA to a Roth IRA. The full taxable amount
held in the traditional IRA that is rolled over to a Roth IRA will be taxable in
the year of the rollover, except rollovers made for 1998, which may be included
in taxable income over a four year period.
An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (postsecondary) educational institution. An individual may
contribute to an educational IRA for the benefit of a child under 18 years old
if the individual's income does not exceed certain limits. The maximum
contribution for the benefit of any one child is $500 per year. Contributions
are not deductible, but earnings accumulate tax-free until withdrawal, and
withdrawals used to pay qualified higher education expenses of the beneficiary
(or transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers under which
an employer may establish IRA accounts for its employees in lieu of establishing
more complicated retirement plans, such as qualified profit sharing or 401(k)
plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE IRAs, they
permit employers to maintain a retirement program for their employees without
being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
Please call the Fund to obtain information regarding the establishment of IRAs
or other retirement plans. A retirement plan custodian may charge fees in
connection with establishing and maintaining the plan. An investor should
consult with a competent adviser for specific advice concerning his or her tax
status and the possible benefits of establishing one or more retirement plan
accounts. The description above is only very general; there are numerous other
rules applicable to these plans to be considered before establishing one.
Shareholders should consult their tax advisors about the application of the
provisions of tax law in light of their particular tax situations.
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<PAGE>
PERFORMANCE
A Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for each class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of a Fund. A Fund with fees or expenses being
waived or absorbed by Scudder Kemper may also advertise performance information
before and after the effect of the fee waiver or expense absorption.
The Fund's historical performance or return for a class of shares may be shown
in the form of "average annual total return" and "total return" figures. These
measures of performance are described below. Performance information will be
computed separately for each class. The Advisor has agreed to a reduction of its
management fee for the Fund to the extent specified herein. See "Investment
Manager and Underwriter." This fee reduction will improve the performance
results of the Fund.
Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in the Fund's portfolio. The
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual total
return for each class of the Fund for a specific period is found by first taking
a hypothetical $1,000 investment ("initial investment") in the class' 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. Average annual return quotations will be
determined to the nearest 1/100th of 1%. The redeemable value in the case of
Class B shares or Class C shares include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. Average
annual return calculated in accordance with this formula does not take into
account any required payments for federal of state income taxes. Such quotations
for Class B shares for periods over six years will reflect conversion of such
shares to Class A shares at the end of the sixth year. 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 in a manner not consistent
with the standard formula described above, without deducting the maximum sales
charge or contingent deferred sales charge.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial Highlights" table in the Fund's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in the Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares or 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 charges were included.
The Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. The Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of
Class B shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. Average annual total return figures do, and total return
figures may, include the effect of the contingent deferred sales charge for the
Class B shares and Class C shares that may be imposed at the end of the period
in question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
Returns and net asset value will fluctuate. Factors affecting the Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce returns
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<PAGE>
described in this section. Shares of the Fund are redeemable at the then current
net asset value, which may be more or less than original cost.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the indices which are described
herein. The Consumer Price Index is generally considered to be a measure of
inflation. The Dow Jones Industrial Average and the Standard & Poor's 500 Stock
Index are indices of common stocks which are considered to be generally
representative of the U.S. stock market. The Financial Times/Standard & Poor's
Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
The Fund's performance may be compared to that of the Consumer Price Index and
may also be compared to the performance of other mutual funds or mutual fund
indexes with similar objectives and policies as reported by independent mutual
fund reporting services such as Lipper Analytical Services, Inc. ("Lipper").
Lipper performance calculations are based upon changes in net asset value with
all dividends reinvested and do not include the effect of any sales 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 and other bank products. Bank product
performance may be based upon, among other things, the BANK RATE MONITOR
National Index(R) or various certificate of deposit indexes. The Fund may also
describe its portfolio holdings and depict its size or relative size compared to
other mutual funds, the number and make-up of its shareholder base and other
descriptive factors concerning the Fund.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes such as 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. Certain
of these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured. Economic indicators may include, without
limitation, indicators of market rate trends and cost of funds, such as Federal
Home Loan Bank Board 11th District Cost of Funds Index ("COFI"). Due to their
short maturities, Treasury bills generally experience very low market value
volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable), the IBC/Donoghue's Money Fund Report@ or Money Market
Insight@, reporting services on money market funds.. As reported by Financial
Data Inc., all investment results represent total return (annualized results for
the period net of management fees and expenses) and one year investment results
are effective annual yields assuming reinvestment of dividends.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birth dates, their principal
occupations and their affiliations, if any, with the Advisor, and KDI, the
principal underwriter, are as follows (the number following each person's title
is the number of
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<PAGE>
investment companies managed by the Advisor for which he or she holds similar
positions and the date following each person's name is his or her date of
birth):
TO BE UPDATED
*DANIEL PIERCE, (3/18/34) Chairman of the Board (35), Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
*MARK S. CASADY (9/21/60) President (14), Two International Place, Boston,
Massachusetts, Managing Director, Scudder Kemper Investments, Inc.
JAMES E. AKINS (10/15/26) Trustee (14), 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly a
career United States Foreign Service Officer, Energy Advisor for the White House
and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Trustee (14), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H. Donnelly Corp.
FREDERICK T. KELSEY (4/25/27) Trustee (14), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds, formerly, Trustee
of the Pilot Fund.
FRED B. RENWICK (2/1/30) Trustee (14), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35) Trustee (14), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33) Trustee (14), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.
*PHILIP J. COLLORA (11/15/45) Vice President, Treasurer and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper Investments, Inc.
*LORI J. ENSINGER (12/12/61) Vice President, 345 Park Avenue, New York, New
York; Senior Vice President, Scudder Kemper Investments, Inc.
*JERALD K. HARTMAN (3/1/33) Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.
*ROBERT T. HOFFMAN (12/7/58) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper Investments, Inc.
*KATHRYN L. QUIRK (12/3/52) Vice President (34), 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
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<PAGE>
*BENJAMIN W. THORNDIKE (3/16/56) Vice President, 345 Park Avenue, New York, New
York; Managing Director; Scudder Kemper Investments, Inc.
*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc., Vice
President, Kemper Distributors, Inc.
* Interested persons of the Trust as defined in the Investment Company Act of
1940.
Compensation of Officers and Trustees
The Trustees and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those Trustees who are not designated "interested persons". The
information in the last column is for calendar year 1998.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Kemper Fund
From Kemper Complex Paid to
Securities Trust Board Members (2)
---------------- -----------------
Name of Board Members
- ---------------------
<S> <C> <C>
James E. Akins........................ TO BE UPDATED
Arthur R. Gottschalk (1)..............
Frederick T. Kelsey (1)...............
Fred B. Renwick.......................
John B. Tingleff......................
John G. Weithers......................
</TABLE>
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds - Zurich
Money Market Fund.
(2) Includes compensation for service on the boards of 13 Kemper fund with 39
funds portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios.
The Independent Trustees also serve in the same capacity for other funds managed
by the Advisor. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules.
The Trustees and Officers as a group owned less than 1% of the Fund's shares as
of the commencement of operations.
Principal Holders of Securities
As of January __, 1999 the following owned of record more than 5% of the
outstanding stock of the Fund as set forth below.
Name and Address Class Percentage
- ---------------- ----- ----------
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To be updated
SHAREHOLDER RIGHTS
The Fund is a series of Kemper Securities Trust (formerly Kemper Growth and
Income Fund), a Massachusetts business trust established under an Agreement and
Declaration of Trust of the Trust ("Declaration of Trust"), dated October 1,
1997.
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Funds," all having a par value of $0.01, which may be divided
by the Board of Trustees into classes of shares. While only shares of a single
Fund with three classes are presently being offered by the Trust, the Board of
Trustees of the Fund may authorize the issuance of additional classes and
additional Funds if deemed desirable, each with its own investment objective,
policies and restrictions. Since the Trust may offer multiple Funds, it is known
as a "series company." Currently, the Trust offers three classes of shares of a
single Portfolio. These are Class A, Class B and Class C shares. Shares of a
Portfolio have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each such
class' Rule 12b-1 Plan. Shares of each class also have equal rights with respect
to dividends, assets and liquidation of the 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 are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. If shares of more than one Portfolio are
outstanding, shareholders will vote by Fund and not in the aggregate or by class
except when voting in the aggregate is required under the 1940 Act, such as for
the election of trustees, or when voting by class is appropriate.
The Fund's activities are supervised by the Trust's Board of Trustees.
The Fund generally is not required to hold meetings of its shareholders. Under
the Declaration of Trust, however, shareholder meetings will be held in
connection with the following matters: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the adoption of any contract for
which approval by shareholders is required by the 1940 Act; (c) any termination
of the Fund or a class to the extent and as provided in the Declaration of
Trust; (d) any amendment of the Declaration of Trust (other than amendments
changing the name of the Fund, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Fund, or any registration of the Fund
with the SEC or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of
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two-thirds of the Outstanding Shares. The Trustees shall promptly call a meeting
of the shareholders for the purpose of voting upon the question of removal of
any such Trustee or Trustees when requested in writing to do so by the holders
of not less than ten percent of the Outstanding Shares, and in that connection,
the Trustees will assist shareholder communications to the extent provided for
in Section 16(c) under the 1940 Act. A majority of the Trustees shall be present
in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and, except
as otherwise required by law, the act of a majority of the Trustees present at
any such meetings, at which a quorum is present, shall be the act of the
Trustees.
The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any class by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by the Advisor remote and
not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
MASTER/FEEDER STRUCTURE. The Board of Trustees may determine, without further
shareholder approval, in the future that the objectives of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure. A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. An
existing investment company is able to convert to a feeder fund by selling all
of its investments, which involves brokerage and other transaction costs and the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of the Class A shares of the Fund is 487915 10 0.
The CUSIP number of the Class B shares of the Fund is 487915 20 9.
The CUSIP number of the Class C shares of the Fund is 487915 30 8.
The Fund has a fiscal year ending September 30.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Advisor in light
43
<PAGE>
of the Fund's investment objectives and policies, its other portfolio holdings
and tax considerations, and should not be construed as recommendations for
similar action by other investors.
Costs of $11,000 incurred by the Fund, in conjunction with its organization, are
amortized over the five-year period beginning February 1, 1998.
Portfolio securities of the Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, State Street Bank and Trust Company.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Kemper Securities Trust" is the designation of the Trust for the time
being under a Declaration of Trust dated October 1, 1997, as amended from time
to time, and all persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents, shareholders nor other series of the Trust assume
any personal liability for obligations entered into on behalf of the Fund. No
other series of the Trust assumes any liabilities for obligations entered into
on behalf of the Fund. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. The Declaration of Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Fund has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
[TO BE UPDATEED]
The Statement of Assets and Liabilities as of Septemer 30, 1998 and the Report
of Independent Auditors is filed herein.
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STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
Kemper Contrarian Fund ("Contrarian Fund")
Kemper-Dreman High Return Equity Fund ("High Return Equity Fund")
Kemper Small Cap Value Fund ("Small Cap Value Fund")
Kemper Small Cap Relative Value Fund ("Small Cap Relative Value Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the prospectus of the Funds dated
February 1, 1999. The prospectus may be obtained without charge from the Funds
by calling the number listed above or the firm from which the prospectus was
obtained.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS 2
INVESTMENT POLICIES AND TECHNIQUES 3
PORTFOLIO TRANSACTIONS 8
INVESTMENT MANAGER AND UNDERWRITER 10
PURCHASE AND REDEMPTION OF SHARES 19
NET ASSET VALUE 31
DIVIDENDS AND TAXES 33
PERFORMANCE 34
OFFICERS AND BOARD MEMBERS 43
SHAREHOLDER RIGHTS 47
The financial statements appearing in the Funds' 1998 Annual Reports to
Shareholders are incorporated herein by reference. The Annual Reports for each
of those Funds accompanies this document.
DRE-13 (5/98) printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50% of
the outstanding shares of the Fund.
Each Fund has elected to be classified as a diversified series of an open-end
investment company.
A Fund may not, as a fundamental policy:
1. Borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
2. Issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
3. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
4. Make loans except as permitted under the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investment secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate as acquired as a result of the
Fund's ownership of securities.
6. Purchase physical commodities or contracts relating to physical
commodities.
7. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
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The Funds (other than Small Cap Relative Value Fund) may not, as a
non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in
connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other investment
companies will be in compliance with the Investment Company Act of 1940.
3. Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and
make initial and variation margin deposits in connection therewith.
4. Mortgage, pledge, or hypothecate any assets except in connection with
borrowings in amounts not in excess of the lesser of the amount borrowed or
10% of the value of its total assets at the time of such borrowing;
provided that the Funds may enter into futures contracts and related
options. Optioned securities are not considered to be pledged for purposes
of this limitation.
5. Invest more than 10% of the value of its net assets in illiquid securities,
including restricted securities and repurchase agreements with remaining
maturities in excess of seven days, and other securities for which market
quotations are not readily available.
6. Invest in oil, gas or mineral exploration or development programs
The Small Cap Relative Value Fund may not, as a non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in
connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other investment
companies will be in compliance with the Investment Company Act of 1940.
3. Invest more than 15% of the value of its net assets in illiquid securities.
4. Mortgage, pledge or hypothecate any assets except in connection with
borrowings or in connection with options and futures contracts.
5. Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and
make initial and variation margin deposits in connection therewith.
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.
INVESTMENT POLICIES AND TECHNIQUES
General. Each Fund may engage in options and financial futures and other
derivatives transactions in accordance with its respective investment objectives
and policies. Each such Fund intends to engage in such transactions if it
appears to the
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investment manager to be advantageous to do so in order to pursue its investment
objective and also to hedge against the effects of market risks but not for
speculative purposes. The use of futures and options, and possible benefits and
attendant risks, are discussed below along with information concerning other
investment policies and techniques.
While it is anticipated that under normal circumstances all Funds will be fully
invested, in order to conserve assets during temporary defensive periods when
the investment manager deems it appropriate, each Fund may invest up to 50% of
its assets 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. Investments in such
interest-bearing securities will be for temporary defensive purposes only.
Common Stocks. Each Fund may invest in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, a Fund participates in the success
or failure of any company in which it holds stock. The market values of common
stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market
movements. Smaller companies are especially sensitive to these factors. An
investment in common stock entails greater risk of becoming valueless than does
an investment in fixed-income securities. Despite the risk of price volatility,
however, common stock also offers the greatest potential for long-term gain on
investment, compared to other classes of financial assets such as bonds or cash
equivalents.
Convertible Securities. Each Fund may invest in convertible securities which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which a Fund may invest include bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock.
Repurchase Agreements. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund might
have expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying securities and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon. In addition, the Fund must take physical possession of the security or
receive written confirmation of the purchase and a custodial or safekeeping
receipt from a third party or be recorded as the owner of the security through
the Federal Reserve Book-Entry System. Repurchase agreements will be limited to
transactions with financial institutions believed by the investment manager to
present minimal credit risk. The investment manager will monitor on an on-going
basis the creditworthiness of the broker-dealers and banks with which the Funds
may engage in repurchase agreements. Repurchase agreements maturing in more than
seven days will be considered as illiquid for purposes of each Fund's limitation
on illiquid securities. The Contrarian, High Return Equity and Small Cap Value
Funds will not invest more than 10%, and the Small Cap Relative Value Fund will
not invest more than 15%, of the value of their net assets in illiquid
securities.
Depository Receipts. Each Fund may invest up to 20% of its assets in securities
of foreign companies through the acquisition of American Depository Receipts
("ADRs") as well as through the purchase of securities of foreign companies that
are publicly traded in the United States. ADRs 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.
Borrowing. Each Fund is authorized to borrow from banks in amounts not in excess
of 10% of their respective total assets (the Small Cap Relative Value Fund is
authorized to borrow from banks in amounts not in excess of one-third (1/3) of
its total assets), although they do not presently intend to do so. If, in the
future, they do borrow from banks, they would not purchase additional securities
at any time when such borrowings exceed 5% of their respective net assets.
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Small Cap Securities. Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the Small Cap Value Fund and the Small Cap Relative Value Fund
may be more volatile than the shares of a fund that invests in larger
capitalization stocks.
Derivatives. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index or an interest rate ("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.
Options on Securities. A Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. A Fund (other than the Contrarian Fund) may write "covered" put
options provided that, as long as the Fund is obligated as a writer of a put
option, the Fund will own an option to sell the underlying securities subject to
the option, having an exercise price equal to or greater than the exercise price
of the "covered" option, or it will deposit and maintain in a segregated account
eligible securities having a value equal to or greater than the exercise price
of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Funds may write, and
the Small Cap Relative Value Fund may also purchase, spread options, which are
options for which the exercise price may be a fixed dollar spread or yield
spread between the security underlying the option and another security that is
used as a bench mark. The exercise price of an option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. The buyer of a put who also owns the related security is protected
by ownership of a put option against any decline in that security's price below
the exercise price less the amount paid for the option. The ability to purchase
put options allows the Small Cap Relative Value Fund to protect capital gains in
an appreciated security it owns, without being required to actually sell that
security. At times the Small Cap Relative Value Fund would like to establish a
position in a security upon which call options are available. By purchasing a
call option, the Fund is able to fix the cost of acquiring the security, this
being the cost of the downturn in the market, because the Fund is only at risk
for the amount of the premium paid for the call option which it can, if it
chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
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If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
Over-the-Counter Options. The Small Cap Relative Value Fund may deal in
over-the-counter traded options ("OTC options"). OTC options are purchased from
or sold to securities dealers, financial institutions or other parties
("Counterparties") through direct bilateral agreement with the Counterparty. In
contrast to exchange listed options, which generally have standardized terms and
performance mechanics, all the terms of an OTC option, including such terms as
method of settlement, term, exercise price, premium, guarantees and security,
are set by negotiation of the parties. The Fund will only sell OTC options that
are subject to a buy-back provision permitting the Fund to require the
Counterparty to sell the option back to the Fund at a formula price within seven
days. The Fund expects generally to enter into OTC options that have cash
settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the investment manager must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO"). The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
Options on Securities Indices. Each Fund may write call options on securities
indices, and each Fund other than the Contrarian Fund may write put options on
securities indices, and the Small Cap Relative Value Fund may purchase 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 a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
A Fund may also deal in options on other appropriate indices as available.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described below. Also, an option
purchased by the Small Cap Relative Value Fund may expire worthless, in which
case the Fund would lose the premium paid therefor.
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Financial Futures Contracts. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security
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 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 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 at a specified price during a specified
delivery period. In some cases, securities called for by a futures contract may
not have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. 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 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. Each Fund may write call options on
financial futures contracts; each Fund other than the Contrarian Fund may write
put options on financial futures contracts; and the Small Cap Relative Value
Fund may purchase call and put options on financial futures contracts. An option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. 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 the Small Cap Relative
Value Fund may expire worthless, in which case the Fund would lose the premium
paid therefor.
Lending Portfolio Securities. A Fund may lend its portfolio securities to
brokers, dealers and institutional investors who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a portfolio can increase its income by the receipt of interest
on the loan. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would accrue to the Fund. Securities'
loans will be made on terms which require that (a) the borrower pledge and
maintain (on a daily basis) with the Fund collateral consisting of cash, a
letter of credit or United States Government securities having a value at all
times not less than 100% of the value of the securities loaned, (b) the loan can
be terminated by the Fund at any
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time, (c) the Fund receives reasonable interest on the loan which may include
the Fund's investing any cash collateral in interest bearing short-term
investments), and (d) any distributions on the loaned securities must be paid to
the Fund. The Fund will not lend its securities if, as a result, the aggregate
of such loans exceeds 33% of the value of the Fund's total assets. Loan
arrangements made by a Fund will comply with all other applicable regulatory
requirements, including the rules of the New York Stock Exchange, which require
the borrower, after notice, to redeliver the securities within the normal
settlement time of five business days. All relevant facts and circumstances,
including the credit worthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Fund's Board of Directors or Board of Trustees, as
applicable. While voting rights may pass with the loaned securities, if a
material event occurs affecting an investment on loan, the loan must be called
and the securities voted. Each Fund does not intend to lend any of its
securities if as a result more than 5% of the net assets of the Fund would be on
loan.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Regulatory Restrictions. To the extent required to comply with applicable
regulation, when purchasing a futures contract or writing a put option, 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.
PORTFOLIO TRANSACTIONS
Scudder Kemper Investments, Inc.
Allocation of brokerage is supervised by Scudder Kemper Investments, Inc.
("Scudder Kemper").
The primary objective of Scudder Kemper in placing orders for the purchase and
sale of securities for a Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. Scudder Kemper seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. Scudder
Kemper reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is Scudder Kemper's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Scudder Kemper is authorized when placing portfolio transactions for a Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of the receipt of research, market
or statistical information. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, Scudder Kemper may give consideration to those firms that have sold
or are selling shares of a Fund managed by Scudder Kemper.
To the maximum extent feasible, it is expected that Scudder Kemper will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder
Kemper. SIS
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will place orders on behalf of the Funds with issuers, underwriters or other
brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to Scudder Kemper, it is the opinion
of Scudder Kemper that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by Scudder
Kemper's staff. Such information may be useful to Scudder Kemper in providing
services to clients other than the Funds and not all such information is used by
Scudder Kemper in connection with the Funds. Conversely, such information
provided to Scudder Kemper by broker/dealers through whom other clients of
Scudder Kemper effect securities transactions may be useful to Scudder Kemper in
providing services to a Fund.
The Board members for a Fund review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by a Fund on portfolio transactions is legally permissible and
advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
Dreman Value Management, L.L.C.
Under the sub-advisory agreement between Scudder Kemper and Dreman Value
Management, L.L.C. ("DVM"), DVM places all orders for purchases and sales of the
High Return Equity Fund's securities. At times investment decisions may be made
to purchase or sell the same investment securities of the Fund and for one or
more of the other clients managed by DVM. 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. Position limits imposed by national
securities exchanges may restrict the number of options the Fund will be able to
write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or future contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases. The Board of Directors
believes that the benefits of DVM's organization outweigh any limitations that
may arise from simultaneous transactions or position limitations.
DVM, in effecting purchases and sale of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders.
DVM may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
execution, financial responsibility, responsiveness, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and DVM. Subject to 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 of DVM. In selecting among firms believed to meet
the criteria for handling a particular transaction, DVM may give consideration
to those firms that have sold or are selling shares of the Fund and of other
funds managed by Scudder Kemper and its affiliates, as well as to those firms
that provide market, statistical and other research information to the Fund and
DVM, although DVM is not authorized to pay higher commissions to firms that
provide such services, except as described below.
DVM may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services as defined
in Section 28(e) of the Securities Exchange Act of 1934 and interpretations
thereunder. Such services may include among other things: economic, industry or
company research reports or investment recommendations; computerized databases;
quotation and execution equipment and software; and research or analytical
computer software and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by DVM
in cash. Subject to Section 28(e) and procedures adopted by the Board of
Directors, the 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 DVM determines in good
faith that the greater commission is reasonable in relation to the value of the
brokerage and research services provided
9
<PAGE>
by the executing firm viewed in terms either of a particular transaction or
DVM's overall responsibilities to the Fund and other clients. Not all of such
research services may be useful or of value in advising the Fund. Research
benefits will be available for all clients of DVM. The sub-advisory fee paid by
Scudder Kemper to DVM is not reduced because these research services are
received.
Brokerage Commissions
The table below shows total brokerage commissions paid by the Contrarian, High
Return Equity and Small Cap Value Funds for the last three fiscal periods and
for the most recent fiscal period, the percentage thereof that was allocated to
firms based upon research information provided. The table below shows total
brokerage commission paid by Small Cap Relative Value Fund from [May 6, 1998
(commencement of operations)] to September 30, 1998.
<TABLE>
<CAPTION>
[TO BE UPDATED] Allocated to firms Based on
Fund Fiscal 1998 Research in Fiscal 1998 Fiscal 1997*6 Fiscal 1996
- ---- ----------- ----------------------- ------------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund $ % $243,000 $157,000
High Return Equity Fund $ % $1,432,000 $489,000
Small Cap Value Fund $ % $1,339,000 $365,000
Small Cap Relative Value $ %
Fund
* January 1, 1997 - November 30, 1997.
</TABLE>
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper, 345 Park Avenue, New York, New York, is the
investment manager of each Fund. Scudder Kemper is approximately 70% owned by
Zurich Financial Services, Inc., a newly formed global insurance and financial
services company. Pursuant to an investment management agreement, Scudder Kemper
acts as the investment adviser of each Fund, manages its investments,
administers its business affairs, furnishes office facilities and equipment,
provides clerical and administrative services, and permits any of its officers
or employees to serve without compensation as Board members or officers of the
Funds if elected to such positions. The investment management agreement provides
that each Fund pays the charges and expenses of its operations, including the
fees and expenses of the directors (except those who are affiliates of Scudder
Kemper or its affiliates), independent auditors, counsel, custodian and transfer
agent and the cost of share certificates, reports and notices to shareholders,
brokerage commissions or transaction costs, costs of calculating net asset value
and maintaining all accounting records related thereto, taxes and membership
dues. Each Fund bears the expenses of registration of its shares with the SEC,
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.
The investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by (a) a majority
of the Board members who are not parties to such agreement or interested persons
of any such party except in their capacity as Board members of the Fund, and (b)
by the shareholders or the Board of the Fund. The 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 each Fund for that Fund, and
will terminate automatically upon assignment.
10
<PAGE>
Responsibility for overall management of each Fund rests with its Board members
and officers. Professional investment supervision is provided by Scudder Kemper.
The investment management agreements provide that Scudder Kemper shall act as
each Fund's investment adviser, manage its investments and provide it with
various services and facilities.
At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich and former investment manager of the Funds, and
Scudder changed it name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owned approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services, Inc. By way of a dual
holding company structure, former Zurich shareholder initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Funds' existing investment management
agreements with Scudder Kemper was deemed to have been assigned and, therefore,
terminated. The Board has approved new investment management agreements with
Scudder Kemper, which are substantially identical to the current investment
management agreements, except for the dates of execution and termination. This
agreements became effective upon the termination of the then current investment
management agreements and will be submitted for shareholder approval at a
special meeting currently scheduled to conclude in December 1998.
The current investment management fee rates are payable monthly at the annual
rates shown below:
<TABLE>
<CAPTION>
Small Cap
High Return Equity Small Cap Relative Value
Average Daily Net Assets Contrarian Fund Fund Value Fund Fund
------------------------ --------------- ---- ---------- ----
<S> <C> <C> <C> <C>
$0 - $250 million 0.75% 0.75% 0.75% 0.75%
$250 million - $1 billion 0.72 0.72 0.72 0.72
$1 billion - $2.5 billion 0.70 0.70 0.70 0.70
$2.5 billion - $5 billion 0.68 0.68 0.68 0.68
$5 billion - $7.5 billion 0.65 0.65 0.65 0.65
$7.5 billion - $10 billion 0.64 0.64 0.64 0.64
$10 billion - $12.5 billion 0.63 0.63 0.63 0.63
Over $12.5 billion 0.62 0.62 0.62 0.62
</TABLE>
11
<PAGE>
From August 24, 1995 through November 30, 1997, the Contrarian, High Return
Equity and Small Cap Value Funds paid the former adviser an investment
management fee calculated at the same annual rate as that currently paid by the
Funds. Prior to August 24, 1995, the Contrarian, High Return Equity and Small
Cap Value Funds paid a second former adviser an investment management fee
calculated at the annual rate of 1.00% of average daily net assets of the Fund
up to $1 billion in net assets and 0.75% thereafter.
The table below shows the total investment management fees paid by the
Contrarian, High Return Equity and Small Cap Value Funds for the last three
fiscal periods; and by Small Cap Relative Value Fund for the period of May 6,
1998 to September 30, 1998.
<TABLE>
<CAPTION>
Fund Fiscal 1998* Fiscal 1997* Fiscal 1996
- ---- ------------ ------------ -----------
<S> <C> <C> <C>
Contrarian Fund $ $903,000 $400,000
High Return Equity Fund $ $12,084,000 $2,430,000
Small Cap Value Fund $ $5,160,000 $ 943,000
Small Cap Relative Value Fund $
* January 1, 1997 - November 30, 1997.
</TABLE>
[Scudder Kemper has agreed to waive temporarily a portion of its management fee
for the Small Cap Relative Value Fund to the extent described in the
prospectus.]
HIGH RETURN EQUITY FUND SUB-ADVISER. Dreman Value Management, L.L.C. ("DVM"),
Three Harding Road, Red Bank, New Jersey 07701, is the sub-adviser for the High
Return Equity Fund. DVM is controlled by David N. Dreman. DVM serves as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
Scudder Kemper. DVM was formed in April 1997 and has served as sub-adviser for
the Fund since August 1997.
Under the terms of the Sub-Advisory Agreement, DVM manages the investment and
reinvestment of the High Return Equity Fund's portfolio and will provide such
investment advice, research and assistance as Scudder Kemper may, from time to
time, reasonably request.
Scudder Kemper pays DVM for its services a sub-advisory fee, payable monthly, at
the annual rate of 0.24% of the first $250 million of the Fund's average daily
net assets, 0.23% of the average daily net assets between $250 million and $1
billion, 0.224% of average daily net assets between $1 billion and $2.5 billion,
0.218% of average daily net assets between $2.5 billion and $5 billion, 0.208%
of average daily net assets between $5 billion and $7.5 billion, 0.205% of
average daily net assets between $7.5 billion and $10 billion, 0.202% of average
daily net assets between $10 billion and $12.5 billion and 0.198% of the Fund's
average daily net assets over $12 billion. In addition, Scudder Kemper has
guaranteed to pay a minimum of $8 million to DVM during each of the calendar
years 2000, 2001 and 2002 that DVM serves as sub-adviser.
The table below shows the total sub-advisory fees paid by the High Return Equity
Fund for the last three fiscal periods.
<TABLE>
<CAPTION>
Fund Fiscal 1998* Fiscal 1997* Fiscal 1996
- ---- ------------ ------------ -----------
<S> <C> <C> <C>
High Return Equity $ $ $
</TABLE>
The Sub-Advisory Agreement provides that DVM 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
DVM in the performance of its duties or from reckless disregard by DVM of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement remains in effect until December 31, 2002 unless
sooner terminated or not annually approved as described below. Notwithstanding
the foregoing, the Sub-Advisory Agreement shall continue in effect through
December 31, 2002 and year to year thereafter, but only as long as such
continuance is specifically approved at least annually (a) by a majority of the
directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund, and (b) by the
shareholders or the Board of Directors of the Fund. The Sub- Advisory Agreement
may be terminated at any time upon 60 days' notice by Scudder Kemper or by the
Board of Directors
12
<PAGE>
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. DVM may not terminate the Sub-Advisory
Agreement prior to July 30, 2000. Thereafter, DVM may terminate the Sub-Advisory
Agreement upon 90 days' notice to Scudder Kemper.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corp. ("SFAC"), a subsidiary of
Scudder Kemper, is responsible for determining the daily net asset value per
share of the Funds and maintaining all accounting records related thereto.
Currently, SFAC receives no fee for its services to the Contrarian, High Return
Equity and Small Cap Value Funds; however, subject to Board approval, at some
time in the future, SFAC may seek payment for its services to those Funds under
its agreement with such Funds. The Small Cap Relative Value Fund pays SFAC an
annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of the next $850 million of such assets and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. For the fiscal year ended 1998, Small Cap Relative Value Fund paid $___
in fees to SFAC.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of
Scudder Kemper, and a wholly-owned subsidiary of Scudder Kemper, is the
principal underwriter and distributor for the shares of each Fund and acts as
agent of each Fund in the continuous offering of its shares. KDI bears all its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. Each Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI, as principal underwriter, pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of the Fund, including the Board members 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 for that 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 or a majority of the Board members who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the 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 a Fund and all material
amendments must in any event be approved by the Board in the manner described
above with respect to the continuation of the agreement.
Prior to September 11, 1995, Fund/Plan Broker Services, Inc. ("FBS"), served as
the underwriter of Contrarian, High Return Equity and Small Cap Value Funds'
shares, pursuant to an underwriting agreement which became effective January 4,
1993. Under the agreement, FBS was the exclusive agent for the Funds' continuous
offer of shares. Prior to September 11, 1995, shares of Contrarian, High Return
Equity and Small Cap Value Funds were offered to the public at net asset value,
without a sales load. No underwriting commissions were associated with sales of
Fund shares for the period January 1, 1995 to September 10, 1995.
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 agreement 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. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the periods noted.
13
<PAGE>
<TABLE>
<CAPTION>
[TO BE UPDATED] Commissions Retained by Commissions Underwriter Commissions Paid to
Fund Fiscal Year Underwriter Paid to All Firms Affiliated Firms
- ---- ----------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund 1998 $ $ $
1997* $ 90,000 $ 576,000 $--
1996 $ 65,000 $ 462,000 $ 41,000
High Return Equity Fund 1997* $3,113,000 $13,161,000 $221,000
1996 $ 601,000 $ 4,531,000 $356,000
Small Cap Value Fund 1998 $ $ $
1997* $ 584,000 $ 4,828,000 $ 68,000
1996 $ 231,000 $ 1,734,000 $114,000
Small Cap Relative Value 1998 $ $ $
Fund**
* Amounts paid from January 1, 1997 through November 30, 1997.
** For the period of [May 6, 1998 (commencement of operations) to September 30,
1998.
</TABLE>
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of such 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 received on redemptions of Class
B shares. See "Redemption or Repurchase of Shares-Contingent Deferred Sales
Charge-Class B Shares." KDI currently compensates firms for sales of Class B
shares at a commission rate of 3.75%.
Class C Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of such Fund attributable to Class C
shares. This fee is accrued daily as an expense of Class C shares. KDI currently
advances to firms the first year distribution fee at a rate of 0.75% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or a Fund. KDI also receives any contingent deferred sales
charges received on redemptions of Class C shares. See "Redemption or Repurchase
of Shares--Contingent Deferred Charge--Class C Shares."
Rule 12b-1 Plan. Each fund has adopted a plan under Rule 12b-1 that provides for
fees payable as an expense of the Class B shares and Class C shares that are
used by KDI to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will over time,
increase the cost of investment and may cost more than other types of sales
charges. The table below shows amounts paid in connection with the Contrarian,
High Return Equity and Small Cap Value Funds' Rule 12b-1 Plan during the period
January 1, 1997 through November 30, 1997.
[TO BE UPDATED]
<TABLE>
<CAPTION>
Contingent
Distribution Fees Deferred Sales
Distribution Expenses Paid by Fund Charge Paid
Incurred By Underwriter to Underwriter to Underwriter
----------------------- -------------- --------------
Fund Class B Class C Class B Class C Class B Class C
- ---- ------- ------- ------- ------- ------- -------
14
<PAGE>
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund $
High Return
Equity Fund $
Small Cap Value Fund $
Small Cap Relative Value Fund $
</TABLE>
If the 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 the Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under the Plan may or
may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
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. A portion of the marketing,
sales and operating expenses shown below could be considered overhead expense.
15
<PAGE>
[TO BE UPDATED]
<TABLE>
<CAPTION>
Contingent Total Distribution
Distribution Deferred Distribution Fees Fees Paid by
Fees Paid by Sales Charge Paid by Underwriter
Fund Class Fiscal Fund to to Underwriter to to Affiliated
B Shares Year Underwriter Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $
1997* $353,000 62,000 989,000 --
1996 $95,000*** 15,000 584,000 15,000
High Return 1998 $
Equity Fund
1997* $5,477,000 817,000 29,872,000 --
1996 $750,000*** 127,000 7,215,000 126,000
Small Cap 1998 $
Value Fund
1997* $1,716,000 221,000 9,907,000 --
1996 $191,000*** 52,000 2,299,000 47,000
Small Cap** 1998 $
Relative Value
Fund
Other Distribution Expenses Paid by Underwriter
------------------------------------------------
Marketing Misc.
Fund Class Advertising Prospectus and Sales Operating Interest
B Shares and Literature Printing Expenses Expenses Expense
- -------- -------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Contrarian Fund
96,000 7,000 287,000 7,000 166,000
148,000 9,000 293,000 57,000 74,000
High Return
Equity Fund
2,812,000 210,000 7,887,000 330,000 2,538,000
1,186,000 75,000 2,455,000 468,000 422,000
Small Cap
Value Fund
867,000 65,000 2,409,000 78,000 810,000
391,000 25,000 813,000 134,000 156,000
Small Cap**
Relative Value
Fund
Contingent Total Distribution
Distribution Deferred Distribution Fees Fees Paid by
Fees Paid by Sales Charge Paid by Underwriter
Fund Class Fiscal Fund to to Underwriter to to Affiliated
C Shares Year Underwriter Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $
1997* $ 29,000 2,000 38,000 --
1996 $2,000*** 2,000 15,000 --
Other Distribution Expenses Paid by Underwriter
------------------------------------------------
Marketing Misc.
Fund Class Advertising Prospectus and Sales Operating Interest
C Shares and Literature Printing Expenses Expenses Expense
- -------- -------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Contrarian Fund
12,000 1,000 35,000 9,000 9,000
20,000 1,000 41,000 6,000 3,000
16
<PAGE>
<S> <C> <C> <C> <C> <C>
High Return 1998 $
Equity Fund
1997 $901,000 31,000 1,417,000 --
1996 $ 96,000*** 3,000 281,000 --
Small Cap 1998 $
Value Fund
1997* $392,000 22,000 677,000 --
1996 $ 48,000 1,000 130,000 --
Small Cap 1998 $
Relative Value
Fund**
High Return 565,000 42,000 1,309,000 32,000 150,000
Equity Fund 202,000 13,000 237,000 55,000 22,000
Small Cap 248,000 19,000 537,000 10,000 69,000
Value Fund 103,000 7,000 136,000 35,000 12,000
Small Cap
Relative Value
Fund**
</TABLE>
(1) No contingent deferred sales charges have been imposed on Class C shares
purchased prior to April 1, 1996.
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from [May 6, 1998 (commencement of operations)] to September
30, 1998.
*** Amounts shown are after expense waiver.
17
<PAGE>
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 0.25% of average daily net assets of the Class A, B and C shares of the
Fund.
KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors in the Funds. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate of up to 0.25% of the net assets
in the Funds' accounts that it maintains and services attributable to Class A
shares, commencing with the month after investment. With respect to Class B and
Class C shares, KDI currently advances to firms the first-year service fee at a
rate of up to 0.25% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms a service fee at a rate of up to
0.25% (calculated monthly and normally paid quarterly) of the net assets
attributable to Class B and C shares maintained and serviced by the firm. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or the Fund. Firms to which service fees
may be paid may include affiliates of KDI.
The following information concerns the administrative services fee paid by each
Fund for the fiscal years ended 1998, 1997, and 1996 (except the Small Cap
Relative Value Fund which commenced operations on May 6, 1998).
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Fiscal Service Fees Paid by Service Fees Paid by
Fund Year Class A Class B Class C Administrator to Firms Administrator to Affiliated
- ---- ---- ------- ------- ------- ---------------------- ---------------------------
Firms
-----
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1998 $
1997* $146,000 111,000 10,000 284,000 --
1996 $32,000*** 42,000 3,000 114,000 2,000
High Return Equity Fund 1998 $
1997* $1,732,000 1,818,000 299,000 4,879,000 15,000
1996 $304,000 293,000 38,000 941,000 19,000
Small Cap Value Fund 1998 $
1997* $936,000 577,000 130,000 2,042,000 5,000
1996 $42,000*** 109,000 19,000 351,000 6,000
Small Cap Relative 1998 $
Value Fund**
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from [May 6, 1998 (commencement of operations)] to September
30, 1998.
*** Amounts shown are after expense waiver.
</TABLE>
18
<PAGE>
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Funds. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from 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 a Fund's assets that is in accounts
for which a firm of record provides administrative services.
Certain Board members or officers of the Funds are also directors or officers of
Scudder Kemper or KDI as indicated under "Officers and Board Members."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110 as sub-custodian, have custody of
all securities and cash of the Contrarian, High Return Equity and Small Cap
Value Funds maintained in the United States. State Street, as custodian, has
custody of all securities and cash of the Small Cap Relative Value Fund
maintained in the United States. IFTC and State Street attend to the collection
of principal and income, and payment for and collection of proceeds of
securities bought and sold by the Funds. IFTC is also the transfer agent and
dividend-paying agent for the Contrarian, High Return Equity and Small Cap Value
Funds. Pursuant to a services agreement with IFTC, Kemper Service Company
("KSVC"), an affiliate of Scudder Kemper, serves as "Shareholder Service Agent"
of the Contrarian, High Return Equity and Small Cap Value Funds, and as such,
performs all of IFTC's duties as transfer agent and dividend paying agent. KSVC
also serves as the transfer agent and dividend-paying agent, as well as the
Shareholder Service Agent, of the Small Cap Relative Value Fund. IFTC receives
as transfer agent for the Contrarian, High Return Equity and Small Cap Value
Funds, and pays to KSVC, annual account fees of $6 per account plus account set
up, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of the
Contrarian, High Return Equity and Small Cap Value Funds and State Street's
custodial fee is reduced by certain earnings credits in favor of the Small Cap
Relative Value Fund. KSVC receives as transfer agent for the Small Cap Relative
Value Fund, annual account fees of $6 per account plus account set up,
transaction and maintenance charges, annual fees associated with the contingent
deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement. The following shows for each Fund, the shareholder service fees
IFTC remitted to KSVC for fiscal year 1998 (except for the Small Cap Relative
Value Fund which commenced operations on or about May 6, 1998).
Fund Fees IFTC Paid to KSvC
- ---- ----------------------
[TO BE UPDATED]
Contrarian Fund $
High Return Equity Fund $
Small Cap Value Fund $
Small Cap Relative Value Fund $
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Contrarian, High Return
Equity and Small Cap Value Funds. Dechert Price & Rhoads, Ten Post Office Square
South, Boston, Massachusetts serves as counsel to the Small Cap Relative Value
Fund.
PURCHASE, Repurchase AND REDEMPTION 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 sales charge but are subject to
higher ongoing expenses than
19
<PAGE>
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 None Initial sales charge waived
charge of 5.75% of the or reduced for certain
public offering price purchases
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; issuance
declines to zero after
six years
Class C Contingent deferred sales 0.75% No conversion feature
charge of 1% of redemption
proceeds for redemptions
made during first year after
purchase
</TABLE>
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 and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed
to Dealers
as a
Percentage
As a As a Percentage of
Percentage of of Net Offering
Amount of Purchase Offering Price Asset 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** ***
20
<PAGE>
* 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.
</TABLE>
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 to dealers up to the full applicable sales
charge, as shown in the above table, during periods and for transactions
specified in such notice and such 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 by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of 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 KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale under the foregoing schedules, KDI will
consider the cumulative amount invested by the purchaser in a Fund and other
Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege also applies.
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-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement dated August 31, 1995, issued in connection with
the aforementioned court proceeding. For sales of Fund shares at net asset value
pursuant to this privilege, KDI may in its discretion pay investment dealers and
other financial services firms a concession, payable quarterly, at an annual
rate of up to .25% of net assets attributable to such shares maintained and
serviced by the firm. A firm becomes eligible for the concession based upon
assets in accounts attributable to shares purchased under this privilege in the
month after the month of purchase and the concession continues until terminated
by KDI. The privilege of purchasing Class A shares of the Fund at net asset
value under this privilege is not available if another net asset value purchase
privilege also applies.
21
<PAGE>
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; (c) officers, directors, and employees of service agents of the Funds;
(d) shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper Fund
acquired by exchange of KVS shares) since that date, for themselves or members
of their families; and (e) 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 a Fund's Class A shares at net asset value hereunder. Class A shares
may be sold at net asset value in any amount to unit investment trusts sponsored
by Ranson & Associates, Inc. In addition, unitholders of unit investment trusts
sponsored by Ranson & Associates, Inc. or its predecessors may purchase 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 an
investment advisory program under which such clients pay a fee to the investment
advisor or other firm for portfolio management and other services. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the 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.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of a 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 of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Funds 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. 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
22
<PAGE>
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of 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 redemption
of Class C shares 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."
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. 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.
Each Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI, to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on a Fund's behalf. Orders for
purchase or redemption will be deemed to have been received by a Fund when such
brokers or their authorized designees accept the orders. Subject to the terms of
the contract between a Fund and the broker, ordinarily orders will be priced at
a Fund's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of a Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees or Directors as the case may be ("Board") of
a Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of a Fund at any time for any reason.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares or Class C shares by certain classes of persons or
through certain types of transactions 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 a its net assets, or (c) for such other periods
as the SEC may by order permit for the protection of a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or 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 and the assessment of the administrative services
fee with respect to each Class 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
23
<PAGE>
the distribution services fee for an indefinite period that may extend beyond
the proposed conversion date.
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 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 may 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 may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
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
telephone instructions are genuine.
The shareholder will bear the risk of loss, including loss resulting from
fraudulent or unauthorized transactions, so long as the reasonable verification
procedures are followed. The verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(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
24
<PAGE>
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.
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 applicable 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 a Fund for up to seven days if
Scudder Kemper 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 following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under 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 commission applicable to such Large Order NAV Purchase.
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Contingent Deferred Sales Charge--Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
Contingent
Deferred
Sales
Year of Redemption After Purchase Charge
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in 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 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 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; (f) 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; (g) redemption of shares by an employer sponsored employee benefit plan
that offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance of the first year administrative service and distribution
fees applicable to such shares and agrees to receive such fees quarterly; and
(h) redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year administrative services and
distribution fees applicable to such shares and has agreed to receive such fees
quarterly.
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
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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 under the schedule above 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 May, 1998 will be eligible for the 3% charge if redeemed on
or after May 1, 1999. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of 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 a
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"), 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, Class B 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 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 the same
Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
Redemption in Kind. Although it is each Fund's present policy to redeem in cash,
if the Board of Directors or Trustees, as the case may be, (the "Board"),
determines that a material adverse effect would be experienced by the remaining
shareholders if payment were made wholly in cash, the Fund will satisfy the
redemption request in whole or in part by a distribution of portfolio securities
in lieu of cash, in conformity with the applicable rules of the Securities and
Exchange Commission, taking such securities at the same value used to determine
net asset value, and selecting the securities in such manner as the Board may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be as liquid as a redemption entirely in cash.
SPECIAL FEATURES
Class A Shares--Combined Purchases. 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 Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund (available only upon
exchange or conversion from Class A shares of another Kemper Mutual Fund),
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper
Value Series, Inc., Kemper Value Plus Growth Fund, Kemper Quantitative Equity
Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper
Securities Trust and Kemper Equity Trust ("Kemper Mutual Funds"). Except as
noted below, there is no combined purchase credit for direct purchases of shares
of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investors Municipal Cash Fund or Investors Cash Trust
("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for
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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.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of 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 Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any 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 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 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 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
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<PAGE>
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of determining the contingent deferred sales
charge that may be imposed upon the redemption of the shares received on
exchange, amounts exchanged retain their original cost and purchase date.
General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis. Shareholders interested in exercising the exchange privilege may
obtain prospectuses of the other funds from dealers, other firms or KDI.
Exchanges may be accomplished by a written request to KSVC, Attention: Exchange
Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by telephone
if the shareholder has given authorization. Once the authorization is on file,
the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Kemper Funds that are eligible for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and the portfolios of Investors Municipal Cash Fund are available for
sale only in certain states. 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 Fund, 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 Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in 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 KSVC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and maximum $50,000) from the shareholder's account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit, the shareholder authorizes the Fund and its agents to either draw
checks or initiate Automated Clearing House debits against the designated
account at a bank or other financial institution. This
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privilege may be selected by completing the appropriate section on the Account
Application or by contacting the Shareholder Service Agent for appropriate
forms. A shareholder may terminate his or her Plan by sending written notice to
KSVC, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination by a
shareholder will become effective within thirty days after the Shareholder
Service Agent has received the request. 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 owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares (and Class A shares purchased under the Large Order NAV Purchase
Privilege and Class C shares in the first year following the purchase) may be
redeemed 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:
Traditional, Roth and Education Individual Retirement Accounts ("IRAs")
with IFTC as custodian. This includes Savings Incentive Match Plan for Employees
of Small Employers ("SIMPLE") IRA accounts and Simplified Employee Pension Plan
("SEP") IRA accounts and prototype documents.
403(b)(7) Custodial Accounts 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, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
ADDITIONAL TRANSACTION INFORMATION
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
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state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over' of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSVC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KDI in acknowledgment of their
dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the 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"). Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the 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 shares of any Fund or class of a
Fund 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 Fund or 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.
NET ASSET VALUE
The net asset value per share of each Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the New York Stock Exchange (the "Exchange") on each day the Exchange is
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open for trading. The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the investment manager may calculate the price of that debt security,
subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects the fair market value of the property on the valuation date.
32
<PAGE>
DIVIDENDS AND TAXES
[TO BE UPDATED]
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income and the Small Cap Value Fund and
the Small Cap Relative Value Fund normally distribute annual dividends of net
investment income. Each Fund distributes any net realized short-term and
long-term capital gains at least annually.
Each Fund may at any time vary the 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 Directors, or Board of Trustees, as
applicable, 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 Kemper Funds.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. The Funds intend to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, generally will not be
liable for federal income taxes to the extent its earnings are distributed.
A Fund's options and futures 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
a Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options, futures and forward contracts 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. In addition, the straddle rules of the Code would require
deferral of certain losses realized on positions of a straddle to the extent
that such Fund had unrealized gains in offsetting positions at year end.
Certain foreign currency-related gains and losses earned by a Fund may be
treated as ordinary income or loss.
The current position of the Internal Revenue Service is to treat a fund, such as
the Small Cap Relative Value Fund, as owning its proportionate share of the
income and assets of any partnership in which it is a partner, in applying the
various regulated investment company qualification tests. These requirements may
limit the extent to which the Small Cap Relative Value Fund may invest in
partnerships, especially in the case of partnerships that do not invest
primarily in a diversified portfolio of stocks and securities.
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. 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 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. 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
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 a 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 held less
33
<PAGE>
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. If a shareholder of Class A shares redeems or
otherwise disposes of such Class A shares less than ninety-one days after they
are acquired and subsequently acquires shares of the Fund or of a Kemper Mutual
Fund without payment of any sales charge (or for a reduced sales charge)
pursuant to a reinvestment privilege acquired in connection with the Class A
shares disposed of, then the sales charge on the Class A shares disposed of (to
the extent of the reduction in the sales charge on the shares subsequently
acquired) shall not be taken into account in determining gain or loss on the
Class A shares disposed of, but shall be treated as incurred on the acquisition
of the shares subsequently acquired.
Investment income derived from certain American Depository Receipts 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
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
value in the case of Class B and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by a Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return may
also be calculated without adjusting to deduct the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the "Financial Highlights" table in the
Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in 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 shares and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B shares and Class C
shares would be reduced if such charge were included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. A Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. Redemption of Class C shares may be
subject to a 1% contingent deferred sales charge in the first year following the
purchase. Returns and net asset value will fluctuate. Factors affecting each
Fund's performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
34
<PAGE>
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.
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 Standard &
Poor's/Barra Value Index, the Russell 1000 Value Index and the Russell 2000
Value Index. The performance of a Fund may also be compared to the combined
performance of two indexes. 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 Index(Infinity) or various certificate of deposit
indexes. Money market fund performance may be based upon, among other things,
the IBC Financial Data, Inc.'s Money Fund Report@ or Money Market Insight@,
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 a 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. A Fund may also discuss the relative performance of
growth stocks versus value stocks.
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 the 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 applicable Fund.
The figures below show performance information for various periods for each
Fund. 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.
35
<PAGE>
[to be updated]
<TABLE>
<CAPTION>
CONTRARIAN FUND -- NOVEMBER 30, 1997
Capital
Initial Gain Income Ending Percentage Ending
TOTAL $10,000 Income Dividends Value Increase Value
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1)
- ----- --- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Life of
Fund (+) $19,916 $10,861 $5,245 $36,022 260.2% $38,220
Five Years 14,954 5,176 1,803 21,933 119.3 23,266
One Year 10,699 792 262 11,753 17.5 12,473
Class B Shares
Life of
Fund (++) $13,813 $1,817 $450 $15,780 57.8% $16,080
One Year 11,340 840 173 12,053 20.5 12,353
Class C Shares
Life of
Fund (++) $13,800 $1,817 $429 $* *% $16,046
One Year 11,341 841 153 * * 12,335
Lipper
Percentage Dow Jones Growth
TOTAL Increase Industrial Standard Consumer Russell and U.S.
RETURN (unadjusted) Average & Poor's Price 1,000(R) Income Treasury
TABLE (1) (3) 500 ( 4) Index(5) Value (6) Fund (7) Bill (8)
- ----- --- --- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 282.2% 429.0% 389.5% 38.6% 379.63% 308.6% 67.3%
Life of 132.7 168.0 150.3 13.7 163.38 129.1 25.8
Fund (+) 24.7 22.2 28.5 1.8 35.18 23.7 5.2
Five Years
One Year
Class B Shares 60.8% 78.0% 78.1% 5.6% 81.69% 62.3% 10.7%
Life of 23.5 22.2 28.5 1.8 35.18 23.7 5.2
Fund (++)
One Year
Class C Shares 60.5% 78.0% 78.1% 5.6% 81.69% 62.3% 10.7%
Life of 23.4 22.2 28.5 1.8 35.18 23.7 5.2
Fund (++)
One Year
AVERAGE Dow Jones
ANNUAL TOTAL Fund Class Fund Class Fund Class Industrial Average
RETURN TABLE A Shares B Shares C Shares (3)
- ------------ -------- -------- -------- ---
<S> <C> <C> <C> <C> <C>
Life of Fund (+) 14.1% * * 18.7%
Life of Fund (++) * 22.8 23.7 29.7
Five Years 17.0 * * 21.8
One Year 17.5 20.5 23.4 22.2
AVERAGE Lipper Growth
ANNUAL TOTAL Standard & Consumer Russell 1000* and Income U.S. Treasury
RETURN TABLE Poor's 500 (4) Price Index(5) Value (6) Fund (7) Bill (8)
- ------------ -------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund (+) 17.8% 3.4% 17.45% 15.5 5.4
Life of Fund (++) 29.7 2.5 29.16 24.4 4.7
Five Years 20.1 2.6 21.37 18.0 4.7
One Year 28.5 1.8 35.18 23.7 5.2
(+) Since March 18, 1988, except for the Russell 1,000(R) Value which is since
March 31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 1,000(R)Value which is since August 31, 1995.
N/A -Not Available.
</TABLE>
36
<PAGE>
HIGH RETURN EQUITY FUND -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Income Percentage Ending
TOTAL $10,000 Gain Dividends Ending Value Increase Value
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1)
- ----- --- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Life of Fund (+) 31,593 11,193 10,649 53,435 434.4 56,694
Five Years 21,966 1,167 2,239 25,372 153.7 26,925
One Year 11,335 132 406 11,873 18.7 12,598
Class B Shares
Life of Fund (++) 17,157 537 617 18,011 80.1 18,311
One Year 12,016 140 324 12,180 21.8 12,480
Class C Shares
Life of Fund (++) 17,163 537 626 * * 18,326
One Year 12,015 140 324 * * 12,479
Percentage Dow Jones Lipper
TOTAL Increase Industrial Standard & Consumer S&P/ Equity
RETURN (unadjusted) Average Poor's 500 Price Barra's Income Fund
TABLE (1) (3) (4) Index (5) Value(9) (12)
----- --- --- --- --------- -------- ----
Class A Shares
Life of Fund (+) 466.9 429.0 389.5 38.6 354.16 281.8
Five Years 169.3 168.0 150.3 13.7 156.03 121.2
One Year 26.0 22.2 28.5 1.8 29.99 23.8
Class B Shares
Life of Fund (++) 83.1 78.0 78.1 5.6 74.70 59.4
One Year 24.8 22.2 28.5 1.8 29.99 23.8
Class C Shares
Life of Fund (++) 83.3 78.0 78.1 5.6 74.70 59.4
One Year 24.8 22.2 28.5 1.8 29.99 23.8
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Class Fund Class Fund Class Dow Jones
TOTAL RETURN TABLE A Shares B Shares C Shares Industrial Average (3)
- ------------------ -------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Life of Fund (+) 18.8 * * 18.7
Life of Fund (++) * 30.4 31.4 29.7
Five Years 20.5 * * 21.8
One Year 18.7 21.8 24.8 22.2
Standard& Consumer Price S&P/ Barra's Lipper Equity
Poor's 500 (4) Index(5) Value (9 Income Fund (12)
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Life of Fund (+) 17.8 3.4 16.79 14.8
Life of Fund (++) 29.7 2.5 27.01 23.4
Five Years 20.1 2.6 20.69 17.2
One Year 28.5 1.8 29.99 23.8
</TABLE>
(+) Since March 18, 1988, except for the S&P/Barra's Value which is since March
31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
S&P/Barra's Value which is since August 31, 1995.
N/A - Not Available.
37
<PAGE>
SMALL CAP VALUE FUND -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Income Ending Ending
TOTAL $10,000 Gain Dividends Value Percentage Value
RETURN Investment Dividends Reinvested (adjusted) Increase (unadjusted)
TABLE (1) Reinvested (2) (1) (adjusted)(1) (1)
- ----- ----------- ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Life of
Fund (+) 20,574 3,295 1,859 25,728 157.3 27,298
Five Year 17,719 2,837 1,601 22,157 23,512
One Year 11,053 25 245 11,323 13.2 12,017
Class B Shares
Life of
Fund (++) 13,625 250 951 14,526 45.3 14,826
One Year 11,638 26 237 11,601 16.0 11,901
Class C Shares
Life of
Fund (++) 13,657 251 953 * * 14,861
One Year 11,640 26 237 11,903
Percentage
Increase Dow Jones Standard & Consumer Russell Lipper
(unadjusted) Industrial Poor's 500 Price 2,000(R)Value Small Cap
(1) Average (3) (4) Index (5) (10) Fund (11)
------------ ----------- ----------- ----------- -------------- ---------
Class A Shares
Life of
Fund (+) 173.0 165.5 164.6 15.6 178.97 127.6
Five Year 135.1 168.0 150.3 13.7 145.74 105.1
One Year 20.2 22.2 28.5 1.8 31.69 13.5
Class B Shares
Life of
Fund (++) 48.3 78.0 78.1 5.6 66.94 34.90
One Year 19.0 22.2 28.5 1.8 31.69 13.5
Class C Shares
Life of
Fund (++) 48.6 78.0 78.1 5.6 66.94 34.90
One Year 19.0 22.2 28.5 1.8 31.69 13.5
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Class Fund Class Fund Class Dow Jones
TOTAL RETURN TABLE A Shares B Shares C Shares Industrial Average (3)
- ------------------ -------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Life of Fund (+) 18.6 * * 19.3
Life of Fund (++) * 18.3 19.5 29.7
Five Years 17.3 * * 21.8
One Year 13.2 16.0 19.0 22.2
Russell Lipper
Standard& Consumer Price 2,000(R)Value Small Cap
Poor's 500 (4) Index(5) (10) Fund (11)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Life of Fund (+) 19.2 2.7 20.17 16.0
Life of Fund (++) 29.7 2.5 24.56 14.4
Five Years 20.1 2.6 19.70 15.5
One Year 28.5 1.8 31.69 13.5
</TABLE>
(+) Since May 22, 1992, except for the Lipper Small Company Fund which is since
May 31, 1992.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 2000 Value which is since August 31, 1995.
N/A - Not Available.
38
<PAGE>
SMALL CAP RELATIVE VALUE FUND -- September 30, 1998
<TABLE>
<CAPTION>
Initial Capital Income Ending Ending
TOTAL $10,000 Gain Dividends Value Percentage Value
RETURN Investment Dividends Reinvested (adjusted) Increase (unadjusted)
TABLE (1) Reinvested (2) (1) (adjusted)(1) (1)
- ----- ----------- ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Life of
Fund
One Year
Class B Shares
Life of
Fund
One Year
Class C Shares
Life of
Fund
One Year
Percentage
Increase Dow Jones Standard & Consumer Russell Lipper
(unadjusted) Industrial Poor's 500 Price 2,000(R)Value Small Cap
(1) Average (3) (4) Index (5) (10) Fund (11)
------------ ----------- ----------- ----------- -------------- ---------
Class A Shares
Life of
Fund
One Year
Class B Shares
Life of
Fund
One Year
Class C Shares
Life of
Fund
One Year
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Class Fund Class Fund Class Dow Jones
TOTAL RETURN TABLE A Shares B Shares C Shares Industrial Average (3)
- ------------------ -------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Life of Fund
Life of Fund
One Year
Russell Lipper
Standard& Consumer Price 2,000(R)Value Small Cap
Poor's 500 (4) Index(5) (10) Fund (11)
-------------- -------------- -------------- --------------
Life of Fund
Life of Fund
One Year
</TABLE>
39
<PAGE>
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 and Class C
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.
(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) Value Index is an unmanaged index comprised of common
stocks of larger U.S. companies with less than average growth orientation.
Companies in this index generally have low price to book and price-earnings
ratios, higher dividend yields and lower forecasted growth values. 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 the 30 largest growth and income mutual funds tracked
by Lipper Analytical Services, Inc. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
(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 Standard & Poor's/Barra Value Index is constructed by dividing the
stocks in the S&P 500 Index according to a single attribute: book-to-price
ratio. The Value Index contains firms with higher book-to-price ratios and
is capitalization weighted. Source is Lipper Analytical Services, Inc.
(10) The Russell 2000(R) Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index (small companies) with a less than
average growth orientation. Companies in this index generally have low
price to book and price-earnings ratios. Source is Lipper Analytical
Services, Inc.
(11) The Lipper Small Cap Fund Index is a net asset value weighted index of the
30 largest small company growth funds. Performance is based on changes in
net asset value with all dividends reinvested and with no adjustment for
sales charges. Source is Towers Data Systems.
(12) The Lipper Equity Income Fund Index is a net asset value weighted index of
the 30 largest equity income funds. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund, 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,
1998.
40
<PAGE>
[to be updated]
CONTRARIAN FUND (3/18/88)
<TABLE>
<CAPTION>
Dividends Cumulative Value of Shares Acquired
Annual Income Annual Capital Reinvested
Year Ended Dividends Gain Dividends Initial Reinvested Income Capital Gain
12/31 Reinvested* Reinvested Investment Dividends* Dividends Total Value
- ----- ---------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1988 $ 132 $ 0 $ 9,925 $ 137 $ 0 $10,062
1989 285 785 10,668 429 806 11,903
1990 277 303 9,512 649 1,019 11,180
1991 307 126 11,645 1,119 1,381 14,145
1992 303 0 12,700 1,542 1,505 15,747
1993 267 1,001 12,812 1,827 2,537 17,176
1994 360 1,483 11,458 1,965 3,748 17,171
1995 473 1,385 15,240 3,130 6,454 24,824
1996 557 1,878 15,956 3,842 8,660 28,458
1997 2,106 1,414 18,540 6,597 11,499 36,636
1998
</TABLE>
HIGH RETURN EQUITY FUND (3/18/88)
<TABLE>
<CAPTION>
Dividends Cumulative Value of Shares Acquired
Annual Income Annual Capital Reinvested
Year Ended Dividends Gain Dividends Initial Reinvested Income Capital Gain
12/31 Reinvested* Reinvested Investment Dividends* Dividends Total Value
- ----- ---------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1988 $ 247 $ 0 $ 10,376 $ 258 $ 0 $10,634
1989 468 2,331 9,539 687 2,370 12,596
1990 524 0 8,326 1,115 2,069 11,510
1991 387 265 11,786 1,990 3,208 16,984
1992 370 123 13,753 2,722 3,872 20,347
1993 298 345 14,581 3,189 4,453 22,223
1994 352 0 14,214 3,449 4,341 22,004
1995 351 589 20,216 5,317 6,782 32,315
1996 1,261 426 24,995 7,887 8,816 41,698
1997 1,832 1,562 30,895 11,632 12,483 55,010
1998
SMALL CAP VALUE FUND (5/22/92)
Dividends Cumulative Value of Shares Acquired
Annual Income Annual Capital Reinvested
Year Ended Dividends Gain Dividends Initial Reinvested Income Capital Gain
12/31 Reinvested* Reinvested Investment Dividends* Dividends Total Value
- ----- ---------- ---------- ---------- ---------- --------- -----------
1992 $ 28 $ 405 $ 10,857 $ 29 $ 411 $11,297
1993 58 507 10,584 86 914 11,584
1994 0 416 10,226 83 1,292 11,601
1995 724 326 13,666 864 2,093 16,623
1996 454 118 17,228 1,557 2,759 21,544
1997 295 460 20,056 2,116 3,685 25,857
1998
SMALL CAP RELATIVE VALUE FUND (5/6/98)
- --------------------------------------
Dividends Cumulative Value of Shares Acquired
Annual Income Annual Capital Reinvested
Year Ended Dividends Gain Dividends Initial Reinvested Income Capital Gain
12/31 Reinvested* Reinvested Investment Dividends* Dividends Total Value
- ----- ---------- ---------- ---------- ---------- --------- -----------
1998 $ $ $ $ $ $
</TABLE>
* Includes short-term capital gain dividends.
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.
41
<PAGE>
Withdrawal of deposits prior to maturity will normally be subject to a penalty.
Rates offered by banks and other depository institutions are subject to change
at any time specified by the issuing institution. Information regarding bank
products may be based upon, among other things, the BANK RATE MONITOR National
Index(TM) for certificates of deposit, which is an unmanaged index and is based
on stated rates and the annual effective yields of certificates of deposit in
the ten largest banking markets in the United States, or the CDA Investment
Technologies, Inc. Certificate of Deposit Index, which is an unmanaged index
based on the average monthly yields of certificates of deposit.
Investors also may want to compare the performance of 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 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's Money Fund Report Averages(R) (All
Taxable). As reported by IBC Financial Data, Inc., 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.
The following tables compare the performance of the Class A shares of the
Contrarian, High Return Equity and Small Cap Value Funds over various periods
ended November 30, 1997 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.
[TO BE UPDATED]
Contrarian Fund Growth & Income Funds
- ---------------- ---------------------
Five Years 92 of 235
One Year 245 of 608
The Lipper Growth & Income Funds category includes funds that combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
[TO BE UPDATED]
High Return Equity Fund Equity Income Funds
- ----------------------- -------------------
Five Years 1 of 60
One Year 45 of 178
The Lipper Equity Income Funds category includes funds that seek relatively high
current income and growth of income through investing 60% or more of its
portfolio in equities.
[TO BE UPDATED]
Small Cap Value Fund Small Company Growth Funds
- -------------------- --------------------------
One Year 255 of 447
Five Years 47 of 134
The Lipper Small Company Fund category includes funds that by prospectus or
portfolio practice limit investments to companies on the basis of the size of
the company.
Small Cap Relative Value Fund Small Company Growth Funds
- ----------------------------- --------------------------
One Year UPDATE
42
<PAGE>
[The Lipper Small Company Fund category includes funds that by prospectus or
portfolio practice limit investments to companies on the basis of the size of
the company.]
OFFICERS AND BOARD MEMBERS
The officers and Board members of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper Investments,
Inc. ("Scudder Kemper") and Kemper Distributors, Inc. ("KDI"), or their
affiliates are listed below. All persons named as Board members also serve in
similar capacities for other funds advised by Scudder Kemper.
All Funds: [TO BE UPDATED]
JAMES E. AKINS (10/15/26), Board Member, 2904 Garfield Terrace N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Officer; Energy Adviser for the White
House; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Board Member, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.
FREDERICK T. KELSEY (4/25/27), Board Member, 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds; formerly, Trustee
of the Pilot Funds.
DANIEL PIERCE (3/18/34), Board Member*, 345 Park Avenue, New York, New York;
Chairman of the Board and Managing Director, Scudder Kemper; Director, Fiduciary
Trust Company and Fiduciary Company Incorporated.
FRED B. RENWICK (2/1/30), Board Member, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc.; Director, The Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of
Pensions, Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35), Board Member, 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33), Board Member, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
MARK S. CASADY (9/21/60), President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper.
JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
43
<PAGE>
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI.
Kemper Value Series, Inc. only: [TO BE UPDATED]
EDMOND D. VILLANI (3/4/47), Director*, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Scudder Kemper.
THOMAS H. FORESTER (12/15/58), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, senior portfolio manager of an
unaffiliated investment management firm from 1995 to 1997; formerly, portfolio
manager for an unaffiliated investment management firm from 1992 to 1995.
FREDERICK L. GASKIN (12/18/61), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, vice president and portfolio
manager for an unaffiliated investment management firm from 1993 to 1996.
JONATHAN KAY (9/22/61), Vice President*, 345 Park Avenue, New York, New York;
Vice President, Scudder Kemper.
THOMAS F. SASSI (11/7/42), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper; formerly, consultant with an unaffiliated
investment consulting firm and an officer of an unaffiliated investment banking
firm from 1993 to 1996.
STEVEN T. STOKES (7/18/62), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper; formerly, portfolio manager and
financial analyst for an unaffiliated investment management firm from 1986 to
1996.
Kemper Securities Trust only: [TO BE UPDATED]
MARK S. CASADY (9/21/60), Trustee*, see above.
KATHRYN L. QUIRK (12/3/52), Trustee*, see above.
JAMES M. EYSENBACH (4/1/62), Vice President*, 101 California Street, Suite 4100,
San Francisco, California; Senior Vice President, Scudder Kemper.
PHILIP S. FORTUNA (11/30/57), Vice President*, 101 California Street, Suite
4100, San Francisco, California; Managing Director, Scudder Kemper.
CALVIN YOUNG (3/20/61), Vice President*, 101 California Street, Suite 4100, San
Francisco, California; Vice President, Scudder Kemper.
* "Interested persons" as defined in the Investment Company Act of 1940.
TO BE UPDATED: The Board members and officers who are "interested persons" as
designated above receive no compensation from the Funds. The table below shows
amounts from Kemper Value Series, Inc. ("KVS") paid or accrued to those
directors who are not designated "interested persons" during the fiscal period
January 1, 1997 through November 30, 1997. The table below also shows estimated
amounts from Kemper Securities Trust (the "Trust"), including estimated amounts
from Small Cap Relative Value Fund, paid or accrued to such trustees for the
current fiscal year. The total compensation from the Kemper Fund complex is for
the 1998 calendar year.
[TO BE UPDATED]
<TABLE>
<CAPTION>
Aggregate Compensation Aggregate Compensation Total Compensation from Kemper Fund
Name of Board Members From KVS from the Trust Complex Paid to Board Members(2)
- --------------------- -------- -------------- --------------------------------
<S> <C> <C> <C>
James E. Akins $ $ $
Arthur R. Gottschalk(1) $ $ $
Frederick T. Kelsey $ $ $
44
<PAGE>
Fred B. Renwick $ $ $
John B. Tingleff $ $ $
John G. Weithers $ $ $
</TABLE>
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds -
Zurich Money Market Fund. The total deferred amount and interest accrued
for the fiscal period ended November 30, 1997 for KVS is $14,500 for Mr.
Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 39
fund portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios. Total compensation does not reflect
amounts paid by Scudder Kemper Investments, Inc. to the board members for
meetings regarding the combination of Scudder and ZKI. Such amounts totaled
$42,800, $40,100, $39,000, $42,900, $42,900, and $42,900 for Messrs. Akins,
Gottschalk, Kelsey, Renwick, Tingleff and Weithers, respectively.
As of March 31, 1998, the officers and Board members as a group owned less than
1% of each Fund, and, as of April 24, 1998, Scudder Kemper owned all of the
outstanding shares of the Small Cap Relative Value Fund.
Principal Holders of Securities [TO BE UPDATED]
As of March 31, 1998 the following owned of record more than 5% of the
outstanding stock of the Contrarian, High Return Equity, and Small Cap Value
Funds, as set forth below.
Name & Address Class Percentage
- -------------- ----- ----------
45
<PAGE>
46
<PAGE>
SHAREHOLDER RIGHTS
The Contrarian, High Return Equity and Small Cap Value Funds are each a series
of Kemper Value Series, Inc. ("KVS"). KVS was organized as a Maryland
corporation in October, 1987 and has an authorized capitalization of
3,000,000,000 shares of $.01 par value common stock. In March, 1998, KVS changed
its name from Kemper Value Fund, Inc. to Kemper Value Series, Inc. and in July,
1997, KVS changed its name from Kemper-Dreman Fund, Inc. to Kemper Value Fund,
Inc. In September, 1995, KVS changed its name from Dreman Mutual Group, Inc. to
Kemper-Dreman Fund, Inc. The Small Cap Relative Value Fund is a series of Kemper
Securities Trust (the "Trust"). The Trust was organized as a business trust
under the laws of Massachusetts on October 2, 1997. The Trust may issue an
unlimited number of shares of beneficial interest in one or more series, all
having a par value of $.01, which may be divided by the Board of Trustees into
classes of shares. Since KVS and the Trust may offer multiple funds, each is
known as a "series company." Currently, KVS offers four classes of shares of
each Fund. These are Class A, Class B and Class C shares, as well as Class I
shares, which have different expenses, that may affect performance, and are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of Scudder Kemper and its affiliates; and (b) the following
investment advisory clients of Scudder Kemper 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
47
<PAGE>
(3) endowment funds of unaffiliated non-profit organizations. Currently, the
Trust offers three classes of shares of the Small Cap Relative Value Fund--Class
A, Class B and Class C shares. The Board may authorize the issuance of
additional classes and additional Funds if deemed desirable, each with its own
investment objectives, policies and restrictions. 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 the 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 Board of Directors of KVS and the Board of Trustees of the Trust may, to the
extent permitted by applicable law, have the right at any time to redeem from
any ____ shareholder, ____ or from all shareholders, all or any part of any
series or class, or of all series or classes, of the shares of KVS and the
Trust.
The Fund's activities are supervised by the Trust's Board of Trustees.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional ____ Information, ____ the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional portfolios
(e.g., election of directors), means the vote of the lesser of (i) 67% of the
Trust's shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., ____ annual approval of _____
investment _____ management contracts), means the vote of the lesser of (i) 67%
of the shares of the portfolio represented at a meeting if the holders of more
than 50% of the outstanding shares of the portfolio are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been ____ elected by the shareholders, that vacancy will be filled
only by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
The Small Cap Relative Value Fund is a series of Kemper Securities Trust
(formerly Kemper Growth and Income Fund) (the "Trust"), a Massachusetts business
trust established under an ____ Agreement ____ and Declaration of Trust of the
____ Trust ("Declaration of Trust"), dated October 1, 1997.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Small Cap Relative Value Fund. The Declaration of Trust, however, ____ disclaims
shareholder liability for acts or obligations of the Small Cap Relative Value
Fund and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Small Cap Relative
Value Fund or the Fund's trustees. Moreover, the Declaration of Trust provides
for indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Small Cap Relative
Value Fund and the Fund will be covered by insurance which the trustees consider
____ adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of ____ shareholder ____ liability is
considered by Scudder Kemper to be remote and not material, since it is limited
to circumstances in which a disclaimer is inoperative and the Fund itself is
unable to meet its obligations.
48
<PAGE>
The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other ____ series ____ may in some circumstances
be available to creditors for that purpose, in which case the assets of such
other series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
____ determine ____ which liabilities are allocable to a given series, or which
are general or allocable to two or more series. In the event of the dissolution
or liquidation of the Trust or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
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 Board members, changing fundamental
policies or approving an investment management agreement. KVS will call a
meeting of shareholders, if requested to do so by the holders of at least 10% of
KVS's outstanding shares. In the case of a meeting called to consider removal of
a Board member or Board members, KVS or the Trust will assist in communications
with other shareholders ____ as ____ required ____ by Section 16(c) of the
Investment Company Act of 1940. If shares of more than one Fund are outstanding,
shareholders will vote by Fund and not in the aggregate or by class except when
voting in the aggregate is required under the Investment Company Act of 1940,
such as for the election of Board members, or when voting by class is
appropriate.
Master/Feeder Structure. The Board of Trustees of the Trust may determine,
without further shareholder approval, in the future that the objectives of the
Small Cap Relative Value Fund would be achieved more effectively by investing in
a master fund in a master/feeder ____ fund ____ structure. ____ A master/feeder
fund structure is one in which a fund (a "feeder fund"), instead of investing
directly in a portfolio of securities, invests all of its investment assets in a
separate registered investment company (the ____ "master _____ fund") ____ with
substantially the same investment objective and policies as the feeder fund.
Such a structure permits the pooling of assets of two or more feeder funds in
the master fund in an effort to achieve possible economies of scale and
efficiencies in portfolio management, while preserving ____ separate identities,
management or distribution channels at the feeder fund level. An existing
investment company is able to convert to a feeder fund by selling all of its
investments, which involves brokerage and other transaction costs and the
realization of taxable gains or loss, or by contributing its assets to the
master fund and avoiding transaction costs and the realization of taxable gain
or loss.
REPORT OF INDEPENDENT AUDITORS
[TO BE UPDATED]
49
<PAGE>
50
<PAGE>
KEMPER SECURITIES TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C>
(a)(1) Declaration of Trust dated October 1, 1997.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(a)(2) Written Consent of Amendment to the Declaration of Trust dated January 8,
1998.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(b) By-laws.
(Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement)
(c) Inapplicable.
(d)(1) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated January 30, 1998. To be filed by Amendment.
(d)(2) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated September 7, 1998. To be filed by Amendment.
(d)(3) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Scudder Kemper Investments, Inc.,
dated May 6, 1998. To be filed by Amendment.
(d)(4) Investment Management Agreement (IMA) between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated September 7, 1998. To be filed by Amendment.
(e)(1) Underwriting Agreement between the Registrant, on behalf of Kemper U.S.
Growth and Income Fund, and Kemper Distributors, Inc. dated January 30,
1998. To be filed by Amendment.
(e)(2) Underwriting Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Distributors, Inc. dated May 6, 1998. To be
filed by Amendment.
(e)(3) Underwriting Agreement between the Registrant and Kemper Distributors, Inc.
dated August 1, 1998. To be filed by Amendment.
(e)(4) Underwriting Agreement between the Registrant and Kemper Distributors, Inc.
dated September 7, 1998. To be filed by Amendment.
(f) Inapplicable.
(g)(1) Custodian Agreement. To be filed by Amendment
(g)(2) Fee schedule for Exhibit g(1). To be filed by Amendment.
Part C - Page 1
<PAGE>
(h)(1) Agency Agreement between the Registrant, on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Service Company, dated May 6, 1998. To be
filed by Amendment.
(h)(2) Fee schedule for Exhibit (h)(1). To be filed by Amendment.
(h)(3) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Scudder Fund Accounting Corp., dated
January 30, 1998. To be filed by Amendment.
(h)(4) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Scudder Fund Accounting Corp.,
dated May 6, 1998. To be filed by Amendment.
(h)(5) Administrative Services Agreement between the Registrant, on behalf of
Kemper U.S. Growth and Income Fund, and Kemper Distributors, Inc., dated
January 30, 1998. To be filed by Amendment.
(h)(6) Administrative Services Agreement between the Registrant, on behalf of
Kemper Small Cap Relative Value Fund, and Kemper Distributors, Inc., dated
May 6, 1998. To be filed by Amendment.
(i) Inapplicable.
(j) Consent of Independent Accountants. To be filed by Amendment.
(k) Inapplicable.
(l) Inapplicable.
(m)(1) Rule 12b-1 Plan between Kemper U.S. Growth and Income Fund (Class B Shares)
and Kemper Distributors, Inc. dated August 1, 1998. To be filed by
Amendment.
(m)(2) Rule 12b-1 Plan between Kemper U.S. Growth and Income Fund (Class C Shares)
and Kemper Distributors, Inc. dated August 1, 1998. To be filed by
Amendment.
(m)(3) Rule 12b-1 Plan between Kemper Small Cap Relative Value Fund (Class B
Shares) and Kemper Distributors, Inc. dated August 1, 1998. To be filed by
Amendment.
(m)(4) Rule 12b-1 Plan between Kemper Small Cap Relative Value Fund (Class C
Shares) and Kemper Distributors, Inc. dated August 1, 1998. To be filed by
Amendment.
(n) Financial Data Schedule. To be filed by Amendment.
(o) Rule 18f-3 Plan. To be filed by Amendment.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Part C - Page 2
<PAGE>
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 23(a) hereto, which is incorporated herein by reference) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Part C - Page 3
<PAGE>
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
Part C - Page 4
<PAGE>
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None.
Thomas W. Littauer Director, Chief Executive Officer Vice President.
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President.
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None.
President
Linda J. Wondrack Vice President and Chief Compliance Vice President.
Officer
Paula Gaccione Vice President None.
Michael E. Harrington Vice President None.
Robert A. Rudell Vice President None.
William M. Thomas Vice President None.
Elizabeth C. Werth Vice President Assistant Secretary.
Todd N. Gierke Assistant Treasurer None.
Philip J. Collora Assistant Secretary Vice President and Secretary.
Paul J. Elmlinger Assistant Secretary None.
Diane E. Ratekin Assistant Secretary None.
Part C - Page 5
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Daniel Pierce Director, Chairman None.
Mark S. Casady Director, Vice Chairman President.
Stephen R. Beckwith Director None.
(c) Not applicable
</TABLE>
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 1st day of
December 1998.
By: /s/ Mark S. Casady
-------------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on December 1, 1998 on behalf of
the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/ Mark S. Casady President
- --------------------------------------
Mark S. Casady
/s/Daniel Pierce* Chairman and Trustee
- --------------------------------------
/s/James E. Akins* Trustee
- --------------------------------------
/s/Arthur R. Gottschalk* Trustee
- --------------------------------------
/s/Frederick T. Kelsey* Trustee
- --------------------------------------
/s/Fred B. Renwick* Trustee
- --------------------------------------
/s/John B. Tingleff* Trustee
- --------------------------------------
/s/ John G. Weithers* Trustee
- -------------------------------------
/s/ John R. Hebble
- -------------------------------------- Treasurer
John R. Hebble
* Philip J. Collora signs this document pursuant to powers of attorney filed
herewith.
By: /s/ Philip J. Collora
------------------------
Philip J. Collora
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/Daniel Pierce Trustee November 18, 1998
- -----------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/James E. Akins Trustee November 18, 1998
- -----------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/Arthur R. Gottschalk Trustee November 18, 1998
- -----------------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/Frederick T. Kelsey Trustee November 18, 1998
- ----------------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/Fred B. Renwick Trustee November 18, 1998
- ------------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/John B. Tingleff Trustee November 18, 1998
- -------------------
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/John G. Weithers Trustee November 18, 1998
- -------------------
<PAGE>
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 4
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER SECURITIES TRUSt
<PAGE>
KEMPER SECURITIES TRUST
EXHIBIT INDEX
Exhibits to be filed by Amendment.
