LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
DECEMBER 30, 1997
PROSPECTUS
KEMPER MONEY FUNDS
Kemper Cash Reserves Fund
KEMPER
[KEMPER LOGO]
<PAGE>
TABLE OF CONTENTS
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Summary 1
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Summary of Expenses 3
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Financial Highlights 7
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Investment Objectives, Policies and Risk
Factors 10
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Kemper Investment Manager and Underwriter 14
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Dividends and Taxes 19
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Net Asset Value 21
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Purchase of Shares 21
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Fund Redemption or Repurchase of Shares 29
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Special Features 36
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Performance 43
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Capital Structure 45
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(Neither this table of contents nor the outside cover are part of the
prospectus.)
<PAGE>
[KEMPER LOGO]
KEMPER
CASH RESERVES
FUND
PROSPECTUS December 30, 1997
KEMPER CASH RESERVES FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
Kemper Cash Reserves Fund is a series of Kemper Portfolios. The objective of
Kemper Cash Reserves Fund is to seek maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments.
AN INVESTMENT IN KEMPER CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This prospectus contains information about the Fund that you should know before
investing and should be retained for future reference. A Statement of Additional
Information dated December 30, 1997, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is available
upon request without charge from the Fund at the address or telephone number on
this cover or the firm from which this prospectus was obtained.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN THE
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
KEMPER CASH RESERVES FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS. Kemper Cash Reserves Fund (the
"Fund") is registered as an open-end, diversified management investment company.
The Fund seeks maximum current income to the extent consistent with stability of
principal from a portfolio of high quality money market instruments. The Fund
seeks to maintain a net asset value of $1.00 per share. There is no assurance
that the objective of the Fund will be achieved or that the Fund will be able to
maintain a net asset value of $1.00 per share. See "Investment Objectives,
Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. The Fund is designed primarily as an exchange vehicle
for investments in other Kemper Funds that offer multiple classes of shares sold
through financial services firms. The Fund provides investors with the option of
purchasing shares in the following ways:
<TABLE>
<S> <C>
Class A Shares............................ Offered at net asset value with no initial sales charge, but
the applicable sales charge applies for exchanges of such
shares into Class A shares of other Kemper Funds.
Class B Shares............................ Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge that
declines from 4% to zero on certain redemptions made within
six years of purchase. Class B shares automatically convert
into Class A shares (which have lower ongoing expenses) six
years after purchase.
Class C Shares............................ Offered at net asset value without an initial sales charge,
but subject to a Rule 12b-1 distribution fee and a 1%
contingent deferred sales charge on redemptions made within
one year of purchase. Class C shares do not convert into
another class.
</TABLE>
1
<PAGE>
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment is $1,000 and each investment
thereafter must be at least $100. Shares are redeemable at net asset value,
which may be more or less than original cost, subject to any applicable
contingent deferred sales charge. See "Purchase of Shares" and "Redemption or
Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Zurich Kemper Investments, Inc. ("ZKI")
serves as investment manager for the Fund. ZKI is paid an investment management
fee by the Fund at an annual rate ranging from .40% to .25% of its average daily
net assets. Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of ZKI,
is principal underwriter and administrator for the Fund. For Class B shares and
Class C shares, KDI receives a Rule 12b-1 distribution fee of .75 of 1% of
average daily net assets. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under administrative services agreements with KDI.
The Fund pays an administrative services fee at the annual rate of up to .25 of
1% of average daily net assets of each class of the Fund, which KDI pays to
various broker-dealer firms and other service or administrative firms. See
"Investment Manager and Underwriter."
DIVIDENDS. The Fund's net investment income is declared as a dividend daily, and
dividends are reinvested or paid in cash monthly. Dividends are automatically
reinvested in additional shares, without a sales charge, unless the shareholder
makes a different election. See "Dividends and Taxes."
2
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES(1) ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price)................... None(2) None None
Maximum Sales Charge on Reinvested Dividends............ None None None
Redemption Fees......................................... None None None
Exchange Fee............................................ None None None
Deferred Sales Charge (as a percentage of redemption None 4% during the first 1% during
proceeds)............................................. year, 3% during the the first
second and third years, year
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
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(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. The table does not include the $9.00 quarterly small
account fee. See "Redemption or Repurchase of Shares."
(2) No initial sales charge applies to purchases of the Fund's Class A shares
but the applicable sales charge applies for exchanges into Class A shares of
other Kemper Mutual Funds.
3
<PAGE>
CLASS A SHARES
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fees............................................. .40%
12b-1 Fees.................................................. None
Other Expenses.............................................. .76%
----
Total Operating Expenses.................................... 1.16%
====
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fees............................................. .40%
12b-1 Fees(3)............................................... .75%
Other Expenses.............................................. 1.04%
----
Total Operating Expenses.................................... 2.19%
====
</TABLE>
- ---------------
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that it is unlikely because of the
automatic conversion feature described under "Purchase of Shares--Deferred
Sales Charge Alternative--Class B Shares."
CLASS C SHARES
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fees............................................. .40%
12b-1 Fees(4)............................................... .75%
Other Expenses.............................................. .69%
----
Total Operating Expenses.................................... 1.84%
====
</TABLE>
- ---------------
(4) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
4
<PAGE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
EXAMPLE
CLASS A SHARES
You would pay the following $12 $37 $64 $141
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period:
</TABLE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(5)
You would pay the following $62 $99 $137 $202
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period:
You would pay the following $22 $68 $117 $202
expenses on the same
investment, assuming no
redemption:
</TABLE>
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(5) Assumes conversion to Class A shares six years after purchase. The
contingent deferred sales charge was applied as follows: 1 year (4%), 3
years (3%), 5 years (2%) and 10 years (0%). See "Redemption or Repurchase of
Shares -- Contingent Deferred Sales Charge -- Class B Shares" for more
information regarding the calculation of the contingent deferred sales
charge.
5
<PAGE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS C SHARES(6)
You would pay the following $29 $58 $100 $216
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at the end
of each time period:
You would pay the following
expenses on the same investment,
assuming no redemption: $19 $58 $100 $216
</TABLE>
- ---------------
(6) The contingent deferred sales charge was applied as follows: 1 year (1%), 3
years (0%), 5 years (0%) and 10 years (0%). See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares."
6
<PAGE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables below show financial information for the Fund expressed in terms of
one share outstanding throughout the period. The information in the tables is
covered by the report of the Fund's independent auditors. The report for the
Fund is contained in its Registration Statement and is available from the Fund.
The financial statements contained in the Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference and may be obtained by writing
or calling the Fund.
7
<PAGE>
<TABLE>
<CAPTION>
JANUARY 10,
YEAR ENDED AUGUST 1, 1992 TO
SEPTEMBER 30, TO SEPTEMBER 30, YEAR ENDED JULY 31, JULY 31,
1997 1996 1995 1995 1994 1993 1992
------------- ---------------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .04 .05 .01 .05 .03 .02 .01
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)(A) 4.57% 4.67 .85 4.99 2.78 2.42 1.57
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(B):
Expenses 1.16% 1.08 .92 .89 .92 .93 1.39
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.45% 4.53 5.11 4.75 2.86 2.42 2.75
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 1,
SEPTEMBER 30, TO SEPTEMBER 30, YEAR ENDED JULY 31,
1997 1996 1995 1995 1994 1993 1992 1991 1990 1989 1988
------- ---- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .03 .04 .01 .04 .02 .02 .03 .05 .07 .07 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)(A) 3.49% 3.73 .71 4.08 1.78 1.56 2.65 5.35 6.72 7.36 5.42
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(B):
Expenses 2.19% 1.99 1.79 1.78 1.89 1.82 2.22 2.18 2.12 2.08 2.08
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.42% 3.62 4.24 3.86 1.89 1.53 2.69 5.32 6.52 7.17 5.31
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 1, YEAR ENDED MAY 31,
SEPTEMBER 30, TO SEPTEMBER 30, JULY 31, TO JULY 31,
1997 1996 1995 1995 1994
-------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends
declared .04 .04 .01 .04 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)(A): 3.85% 3.93 .71 4.08 .42
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses 1.84% 1.79 1.78 1.76 1.80
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.77% 3.82 4.25 3.88 2.64
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 1,
SEPTEMBER 30 TO SEPTEMBER 30, YEAR ENDED JULY 31,
1997 1996 1995 1995 1994 1993 1992 1991
----------------- ---------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net asset at end of period
(in thousand) $339,655 207,616 176,557 213,031 424,317 166,808 156,219 240,994
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED JULY 31,
1990 1989 1988
-------------------------
<S> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net asset at end of period
(in thousand) 284,977 285,194 245,604
- ---------------------------------------------------------------
</TABLE>
(a) The total returns for the year ended July 31, 1995 include the effect of a
capital contribution from the investment manager. Without the capital
contribution, the total returns would have been 4.07% in Class A, 3.16% in Class
B and 3.16% in Class C.
(b) ZKI agreed to absorb temporarily, certain operating expenses of the Fund
during a portion of fiscal 1994 and 1993. Without this agreement, ratios of
expenses and net investment income to average net assets for the Class A shares
would have been 1.15% and 2.63%, respectively, for fiscal 1994 and 1.18% and
2.17%, respectively, for fiscal 1993. Ratios of expenses and net investment
income to average net assets for the Class B shares would have been 2.12% and
1.66%, respectively, for fiscal 1994 and 2.07% and 1.28%, respectively, for
fiscal 1993.
NOTE: Total return does not reflect the effect of any sales charges. The Fund is
a separate portfolio of Kemper Portfolios, a Massachusetts business trust. See
"Capital Structure."
9
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objective, policies
and risk factors. The Fund seeks to maintain a net asset value of $1.00 per
share. There is no assurance that the Fund will achieve its objective.
The Fund seeks maximum current income to the extent consistent with stability of
principal from a portfolio of the following types of U.S. Dollar denominated
money market instruments that mature in 12 months or less:
1. Obligations of, or guaranteed by, the U.S. or Canadian Governments, their
agencies or instrumentalities. The two broad categories of U.S. Government debt
instruments are: (a) direct obligations of the U.S. Treasury and (b) securities
issued or guaranteed by agencies and instrumentalities of the U.S. Government.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States and
others are backed exclusively by the agency or instrumentality with limited
rights of the issuer to borrow from the U.S. Treasury.
2. Bank certificates of deposit, time deposits or bankers' acceptances limited
to U.S. banks or Canadian chartered banks having total assets in excess of $1
billion.
3. Bank certificates of deposit, time deposits or bankers' acceptances of U.S.
branches of foreign banks having total assets in excess of $10 billion.
4. Commercial paper rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or
commercial paper or notes issued by companies with an unsecured debt issue
outstanding currently rated A or higher by Moody's or S&P where the obligation
is on the same or a higher level of priority as the rated issue, and investments
in other corporate obligations such as publicly traded bonds, debentures and
notes rated A or higher by Moody's or S&P.
5. Repurchase agreements of obligations which are suitable for investment under
the categories set forth above. Repurchase agreements are discussed under
"Additional Investment Information" below.
In addition, the Fund limits its investments to securities that meet the quality
and diversification requirements of Rule 2a-7 under the Investment Company Act
of 1940. See "Net Asset Value."
10
<PAGE>
To the extent the Fund purchases Eurodollar certificates of deposit issued by
London branches of U.S. banks, or commercial paper issued by foreign entities,
consideration will be given to their marketability, possible restrictions on
international currency transactions and regulations imposed by the domicile
country of the foreign issuer. Eurodollar certificates of deposit may not be
subject to the same regulatory requirements as certificates issued by U.S. banks
and associated income may be subject to the imposition of foreign taxes. The
Fund will normally invest at least 25% of its net assets in instruments issued
by domestic or foreign banks. As a result, the Fund may be more adversely
affected by changes in market or economic conditions and other circumstances
affecting the banking industry than it would be if the Fund's assets were not so
concentrated.
The Fund seeks to maintain its net asset value at $1.00 per share by valuing its
portfolio of investments on the amortized cost method in accordance with Rule
2a-7. While the Fund will make every effort to maintain a fixed net asset value
of $1.00 per share, there can be no assurance that this objective will be
achieved. See "Net Asset Value."
The Fund may invest in instruments bearing rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuations in values of the instruments ("Variable Rate Securities").
The interest rate of Variable Rate Securities is ordinarily determined by
reference to or is a percentage of an objective standard. Generally, the changes
in the interest rate on Variable Rate Securities reduce the fluctuation in the
market value of such securities. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed rate obligations. Some Variable Rate Securities ("Variable Rate Demand
Securities") have a demand feature entitling the purchaser to resell the
securities to the issuer at an amount approximately equal to amortized cost or
the principal amount thereof plus accrued interest. As is the case for other
Variable Rate Securities, the interest rate on Variable Rate Demand
Securities varies according to some objective standard intended to minimize
fluctuation in the values of the instruments. The Fund determines the maturity
of Variable Rate Securities in accordance with Securities and Exchange
Commission rules that allow the Fund to consider certain of such instruments as
having maturities earlier than the maturity date on the face of the instrument.
11
<PAGE>
SECTION 4(2) PAPER. Subject to its investment objectives and policies, the Fund
may invest in commercial paper issued by major corporations under the Securities
Act of 1933 in reliance on the exemption from registration afforded by Section
3(a)(3) thereof. Such commercial paper may be issued only to finance current
transactions and must mature in nine months or less. Trading of such commercial
paper is conducted primarily by institutional investors through investment
dealers, and individual investor participation in the commercial paper market is
very limited. The Fund also may invest in commercial paper issued in reliance on
the so-called "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in the Section 4(2) paper, thus providing liquidity. The investment
manager considers the legally restricted but readily saleable Section 4(2) paper
to be liquid; however, pursuant to procedures approved by the Board of Trustees,
if a particular investment in Section 4(2) paper is not determined to be liquid,
that investment will be included within the limitation on illiquid securities.
The investment manager monitors the liquidity of the Fund's investments in
Section 4(2) paper on a continuing basis. See "Investment Restrictions" in the
Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. The Fund will invest only in securities with
remaining maturities of 12 months or less and maintains a dollar-weighted
average portfolio maturity of 90 days or less in accordance with Rule 2a-7 under
the Investment Company Act of 1940. Since securities with maturities of less
than one year are excluded from portfolio turnover rate calculations, the
portfolio turnover rate for the Fund is zero.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to one-third of the value of
its total assets in order to meet redemption requests without immediately
selling any portfolio securities. If, for any reason, the current value of the
Fund's total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed,
12
<PAGE>
the Fund will, within three days (not including Sundays and holidays), reduce
its indebtedness to the extent necessary. The Fund will not borrow for leverage
purposes.
The Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 10% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities.
The Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and that, together with the
investment objective and policies of the Fund cannot be changed without approval
by holders of a majority of its outstanding voting shares. As defined in the
Investment Company Act of 1940 ("1940 Act"), this means the lesser of the vote
of (a) 67% of the shares of 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.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, under which
it acquires ownership of a security and the broker-dealer or bank agrees to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment manager to present minimal credit risk. The investment manager will
monitor on an on-going basis the creditworthiness of the broker-dealers and
banks with which the Fund may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Fund's limitations on illiquid securities.
13
<PAGE>
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or other liquid securities) equal to no
less than the market value, determined daily, of the securities loaned. The Fund
will receive amounts equal to dividends or interest on the securities loaned.
The Fund will also earn income for having made the loan. Any cash collateral
pursuant to these loans will be invested in short-term money market instruments.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
investment manager to be of good standing, and when the investment manager
believes the potential earnings to justify the attendant risk. Management will
limit such lending to not more than one-third of the value of the Fund's total
assets.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. ZKI is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-nine years. ZKI and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, affiliated insurance companies and other corporate, pension,
profit-sharing and individual accounts representing approximately $89 billion
under management (including approximately $16 billion in U.S. Government
securities). ZKI acts as investment manager for 32 open-end and seven closed-end
investment companies, with 86 separate investment portfolios, representing more
than 2.5 million shareholder accounts. ZKI is an indirect subsidiary of Zurich
Insurance Company, a leading internationally recognized provider of insurance
and financial services in property/casualty and life insurance, reinsurance and
structured financial solutions as well as asset management.
Zurich Insurance Company ("Zurich") has entered into a definitive agreement with
Scudder, Stevens & Clark, Inc. ("Scudder") pursuant to which Zurich will acquire
approximately 70% of Scudder. Upon completion of the transaction, Scudder will
change its name to Scudder Kemper
14
<PAGE>
Investments, Inc. ("SKI"), and ZKI will be combined with SKI. Because the
transaction would constitute an assignment of the Fund's investment management
agreement with ZKI under the Investment Company Act of 1940, ZKI sought approval
of new agreements. The Fund's board and shareholders have approved new
agreements with SKI. If any remaining contingencies are timely met, the
transaction is expected to close December 31, 1997. Zurich will own 69.5% of SKI
and senior employees of SKI will hold the remaining 30.5%. SKI will be
headquartered in New York City and the chief executive officer of SKI will be
Edmond D. Villani, Scudder's president and chief executive officer.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by ZKI.
The investment management agreement provides that ZKI shall act as the Fund's
investment adviser, manage its investments and provide it with various services
and facilities. For the services and facilities furnished, the Fund pays an
annual investment management fee, payable monthly, on a graduated basis of .40%
of the first $250 million of average daily net assets, .38% of the next $750
million, .35% of the next $1.5 billion, .32% of the next $2.5 billion, .30% of
the next $2.5 billion, .28% of the next $2.5 billion, .26% of the next $2.5
billion, and .25% of average daily net assets over $12.5 billion.
Frank J. Rachwalski, Jr. is the portfolio manager of the Fund. He has served in
this capacity since the Fund commenced operations in February 1984. Mr.
Rachwalski joined ZKI in January 1973 and is currently a Senior Vice President
of ZKI and a Vice President of the Fund. He received a B.B.A. and an M.B.A. from
Loyola University, Chicago, Illinois.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a wholly owned
subsidiary of ZKI, is the principal underwriter and distributor of the Fund's
shares and acts as agent of the Fund in the sale of its shares. KDI bears all
its expenses of providing services pursuant to the distribution agreement,
including the payment of any commissions. KDI provides for the preparation of
advertising or sales literature and bears the cost of printing and mailing
prospectuses to persons other than shareholders. KDI bears the cost of
qualifying and maintaining the qualification of Fund shares for sale under the
securities laws of the various
15
<PAGE>
states and the Fund bears the expense of registering its shares with the
Securities and Exchange Commission. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
CLASS A SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of .75% of average
daily net assets of the Fund attributable to Class B shares. This fee is accrued
daily as an expense of Class B shares. KDI also receives any contingent deferred
sales charges. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of .75% of average
daily net assets of the Fund attributable to Class C shares. This fee is accrued
daily as an expense of Class C shares. KDI currently advances to firms the first
year distribution fee at a rate of .75% of the purchase price of Class C shares.
For periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of .75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares."
RULE 12B-1 PLAN. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares. Currently, the
16
<PAGE>
Fund's Rule 12b-1 Plan is separated from its distribution agreement. The table
below shows amounts paid in connection with the Fund's Rule 12b-1 Plan during
its 1997 fiscal year.
<TABLE>
<CAPTION>
CONTINGENT
DISTRIBUTION FEES DEFERRED
DISTRIBUTION EXPENSES PAID BY FUND SALES CHARGES PAID
INCURRED BY UNDERWRITER TO UNDERWRITER TO UNDERWRITER
- ----------------------- -------------------- --------------------
CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$7,109,000 982,000 1,499 118 808 16
</TABLE>
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of the Fund to make payments to KDI pursuant to the Plan will
cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of the Fund pursuant to an administrative services
agreement ("administrative agreement"). KDI may enter into related arrangements
with various broker-dealer firms and other service or administrative firms
("firms"), that provide services and facilities for their customers or clients
who are investors of the Fund. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining accounts and
records, processing purchase and redemption transactions, answering routine
inquiries regarding the Fund and its special features and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreement, the Fund pays KDI
a fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of Class A, Class B and Class C shares of the Fund. KDI then pays each
firm a service fee at an annual rate of up to .25% of net assets attributable to
Class A, Class B and Class C shares maintained and serviced by the firm. Firms
to which service fees may be paid include affiliates of KDI.
17
<PAGE>
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based on assets in the accounts in the month following the month of purchase and
the fee continues until terminated by KDI or the Fund. The fees are calculated
monthly and normally paid quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and normally paid quarterly) of the
net assets attributable to Class B and Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from the
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of the Fund while this procedure is in
effect will depend upon the proportion of Fund assets that is in accounts for
which a firm provides administrative services. In addition, KDI may, from time
to time, from its own resources, pay certain firms additional amounts for
ongoing administrative services and assistance provided to their customers and
clients who are shareholders of the Fund.
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, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. IFTC also is the Fund's transfer agent and dividend-paying agent.
Pursuant to a services agreement with IFTC, Kemper Service Company ("KSvC"), an
affiliate of ZKI, serves as "Shareholder Service Agent" of the Fund and as such,
performs all of IFTC's duties as transfer agent and dividend-paying agent. For a
description of shareholder service agent fees payable to the Shareholder Service
Agent, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
18
<PAGE>
PORTFOLIO TRANSACTIONS. ZKI places all orders for purchases and sales of the
Fund's securities. See "Portfolio Transactions" in the Statement of Additional
Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund's net investment income is declared as a dividend daily, and
dividends are reinvested or paid in cash monthly.
Dividends paid by the Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income dividends and capital gain dividends, if any, of the Fund will be
credited to shareholder accounts in full and fractional shares of the same class
of the Fund at net asset value, except that, upon written request to the
Shareholder Service Agent, a shareholder may elect to receive income and capital
gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of the Fund invested in
shares of the same class of another Kemper Fund at the net asset value of such
class of such other fund. See "Special Features--Class A Shares--Combined
Purchases" for a list of such other Kemper Funds. To use this privilege of
investing dividends of the Fund in shares of another Kemper Fund, shareholders
must maintain a minimum account value of $1,000 in the Fund. The Fund reinvests
dividend checks (and future dividends) in shares of that same class if checks
are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
Fund unless the shareholder requests that such policy not be applied to the
shareholder's account.
TAXES. The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code")
19
<PAGE>
and, if so qualified, will not be liable for federal income taxes to the extent
its earnings are distributed. Dividends derived from net investment income and
net short-term capital gains are taxable to shareholders as ordinary income
whether received in cash or shares. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. No portion of the dividends paid by the Fund will qualify for the
dividends received deduction.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment 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.
20
<PAGE>
NET ASSET VALUE
The Fund's net asset value per share is determined separately for each class as
of the earlier of 3:00 p.m. Chicago time or the close of the New York Stock
Exchange (the "Exchange") on each day the Exchange is open for trading. The Fund
seeks to maintain a net asset value of $1.00 per share in each class but there
is no assurance that it will do so. The net asset value per share of a class is
determined by dividing the Fund's net assets attributable to that class by the
total number of shares of the class outstanding. The Fund values its portfolio
instruments at amortized cost, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or discount) rather
than at current market value. Calculations are made to compare the value of its
investments valued at amortized cost with market-based values. Market-based
values are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the mean
between the bid and asked prices for the instruments. If a deviation of 1/2 of
1% or more were to occur between the Fund's $1.00 per share net asset value,
calculated at amortized cost, and the net asset value per share calculated by
reference to market-based quotations, or if there is any other deviation which
the Board of Trustees believes would result in a material dilution to
shareholders or purchasers, the Board of Trustees will promptly consider what
action, if any, should be initiated. In order to value its investments at
amortized cost, the Fund purchases only securities with a maturity of 12 months
or less and maintains a Dollar-weighted average portfolio maturity of 90 days or
less. In addition, the Fund limits its portfolio investments to securities that
meet the quality and diversification requirements of Rule 2a-7. See "Investment
Objectives, Policies and Risk Factors."
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of the Fund are sold to
investors without an initial sales charge, but Class A shares of the Fund
exchanged into Class A shares of another Kemper Mutual Fund are subject to the
applicable sales charge of the Kemper Mutual Fund at the time of the exchange.
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.
21
<PAGE>
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The Fund is designed primarily as an exchange vehicle for investments in other
Kemper Mutual Funds sold through financial services firms. For example, the Fund
may serve as a temporary investment for amounts ultimately intended for
investment in equity or fixed income Kemper Mutual Funds through techniques such
as "dollar cost averaging." 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.
22
<PAGE>
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
---------------------------------- ------------------------ ----------------------------------
<S> <C> <C> <C>
Class A* None None
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
- ---------------
* No initial sales charge applies to purchases of Class A shares of the Fund,
but the applicable sales charge applies for exchanges into Class A shares of
other Kemper Mutual Funds.
23
<PAGE>
The minimum initial investment for the Fund is $1,000 and the minimum subsequent
investment is $100. The minimum initial investment for an Individual Retirement
Account is $250 and the minimum subsequent investment is $50. Under an automatic
investment plan, such as Bank Direct Deposit, Payroll Direct Deposit or
Government Direct Deposit, the minimum initial and subsequent investment is $50.
These minimum amounts may be changed at any time in management's discretion. In
order to begin accruing income dividends as soon as possible, purchasers may
wire payment to United Missouri Bank of Kansas City, N.A., 10th and Grand
Avenue, Kansas City, Missouri 64106.
The Fund seeks to be as fully invested as possible at all times in order to
achieve maximum income. Since the Fund will be investing in instruments which
normally require immediate payment in Federal Funds (monies credited to a bank's
account with its regional Federal Reserve Bank), the Fund has adopted certain
procedures for the convenience of its shareholders and to ensure that the Fund
receives investable funds. (a) WIRE TRANSFER. Orders received by wire transfer
in the form of Federal Funds will be effected at the next determined net asset
value after receipt by the Fund's Shareholder Service Agent and such shares will
receive the dividend for the next calendar day following the day when the
purchase is effective. If payment is wired in Federal Funds, the payment should
be wired to United Missouri Bank of Kansas City, N.A., 10th and Grand Avenue,
Kansas City, Missouri 64106. If payment is to be wired, the firm which services
the account should handle the details of the transaction. (b) CHECK. Orders for
purchase accompanied by a check or other negotiable bank draft will be accepted
and effected as of the close of the Exchange on the business day following
receipt and such shares will receive the dividend for the next calendar day
following the day when the purchase is effective. (c) DEALER TRADES. Orders
processed through dealers or other financial services firms, including trades
via Fund/SERV, will be effected at the net asset value effective on the trade
date. These purchases will begin earning dividends the calendar day following
the payment date. See "Dividends and Taxes" for more information.
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
24
<PAGE>
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).
CLASS A SHARES. Class A shares are sold at their net asset value with no sales
charge.
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 six
years after issuance on the basis of the relative net asset value per share.
Class B shareholders 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.
25
<PAGE>
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 .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 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, and the
other Kemper Mutual Fund into which the investor may wish to exchange in the
future. Shareholders of Class A, Class B and Class C shares of the Fund may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds. See "Special Features--Exchange Privilege." Investors who prefer
not to pay an initial sales charge might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. Orders for Class B shares or Class C shares
for $500,000 or more will be declined. Orders for Class B shares or Class C
shares by employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent will be
invested instead in Class A shares at net asset value where the combined
subaccount value in the Fund or other Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases" is in excess of $5 million
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features described under "Special Features." For more
information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services
26
<PAGE>
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 are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSvC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KDI in acknowledgement 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.
27
<PAGE>
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of the Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Fund reserves the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
28
<PAGE>
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, the Fund
may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this
prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of the Fund will be the net asset value per
share of the Fund next determined following receipt by the Shareholder Service
Agent of a properly executed request with any required documents as described
above. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than seven days after receipt of a properly
executed request accompanied by any outstanding share certificates in proper
form for transfer. When the Fund is asked to redeem
29
<PAGE>
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 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, effective January 1998,
the Fund may assess a quarterly fee of $9 on an account with a balance below
$1,000 for the quarter. The fee will not apply to accounts enrolled in an
automatic investment program, Individual Retirement Accounts or employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
If shares being redeemed were acquired from an exchange of shares of a mutual
fund that were offered subject to a contingent deferred sales
30
<PAGE>
charge as described in the prospectus for that other fund, the redemption of
such shares by the Fund may be subject to a contingent deferred sales charge as
explained in such prospectus.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The 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
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<PAGE>
transmit orders promptly. The repurchase price will be the net asset value of
the Fund next determined after receipt of a request by KDI. However, requests
for repurchases received by dealers or other firms prior to the determination of
net asset value (see "Net Asset Value") and received by KDI prior to the close
of KDI's business day will be confirmed at the net asset value effective on that
day. The offer to repurchase may be suspended at any time. Requirements as to
stock powers, certificates, payments and delay of payments are the same as for
redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if ZKI deems it appropriate under then current market conditions.
Once authorization is on file, the Shareholder Service Agent will honor requests
by telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Fund is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
redemption privilege. The Fund reserves the right to terminate or modify this
privilege at any time.
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<PAGE>
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 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.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER SALES
PURCHASE CHARGE
- ---------- ----------
<S> <C>
First................................................................. 4%
Second................................................................ 3%
Third................................................................. 3%
Fourth................................................................ 2%
Fifth................................................................. 2%
Sixth................................................................. 1%
</TABLE>
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios, hold them
subject to the same CDSC schedule that applied when those shares were purchased,
as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR OF ---------------------------------------------------------------------------------------
REDEMPTION SHARES PURCHASED ON OR AFTER
AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
PURCHASE MARCH 1, 1993 MARCH 1, 1993 FEBRUARY 1, 1991
---------- ---------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
First............ 4% 3% 5%
Second........... 3% 3% 4%
Third............ 3% 2% 3%
Fourth........... 2% 2% 2%
Fifth............ 2% 1% 2%
Sixth............ 1% 1% 1%
</TABLE>
33
<PAGE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below) and (d) for redemptions made
pursuant to any IRA systematic withdrawal based on the shareholder's life
expectancy including, but not limited to, substantially equal periodic payments
described in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2;
and (e) for redemptions to satisfy required minimum distributions after age 70
1/2 from an IRA account (with the maximum amount subject to this waiver being
based only upon the shareholder's Kemper IRA accounts). The contingent deferred
sales charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends. 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
34
<PAGE>
based on the shareholder's life expectancy including, but not limited to,
substantially equal periodic payments described in Internal Revenue Code Section
72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy required
minimum distributions after age 70 1/2 from an IRA account (with the maximum
amount subject to this waiver being based only upon the shareholder's Kemper IRA
accounts), (f) for any participant-directed redemption of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent and (g)
redemption of shares by an employer sponsored employee benefit plan that offers
funds in addition to Kemper Funds and whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends to a total of $11,000. If the investor were then to redeem the entire
$11,000 in share value, the contingent deferred sales charge would be payable
only with respect to $10,000 because the $1,000 of reinvested dividends is not
subject to the charge. The charge would be at the rate of 3% ($300) because it
was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1997 will be eligible for the second year's charge if redeemed on or
after December 1, 1998. 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 of the Fund who redeems Class B shares or
Class C shares and incurs a contingent deferred sales charge may reinvest up to
the full amount redeemed at net asset value at the time of the reinvestment in
Class A shares, Class B shares or Class C shares, as the case may be, of its
Fund or of any other Kemper Mutual Fund listed under
35
<PAGE>
"Special Features -- Class A Shares -- Combined Purchases". The amount of any
contingent deferred sales charge also will be reinvested. These reinvested
shares will retain their original cost and purchase date for purposes of the
contingent deferred sales charge. Also, a holder of Class B shares who has
redeemed shares may reinvest up to the full amount redeemed, less any applicable
contingent deferred sales charge that may have been imposed upon the redemption
of such shares, at net asset value in Class A shares of the Fund or of the other
Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. The
reinvestment privilege may be terminated or modified at any time.
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. The Class A shares (or the equivalent) of
any Kemper Mutual Fund 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, 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 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
36
<PAGE>
considered "Kemper Mutual Funds" for purposes hereof. For purposes of the
Combined Purchases feature described above as well as for the Letter of Intent
and Cumulative Discount features described below, employer sponsored employee
benefit plans using the subaccount record keeping system made available through
the Shareholder Service Agent may include: (a) Money Market Funds as "Kemper
Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund, and (c) the
value of any other plan investments, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares of the Fund are included for this privilege.
CLASS A SHARES -- CUMULATIVE DISCOUNT. Class A shares of a Kemper Mutual Fund
may also be purchased at the rate applicable to the discount bracket attained by
adding to the cost of shares of the Fund being purchased, the value of all Class
A shares of the above mentioned Kemper
37
<PAGE>
Mutual Funds (computed at the maximum offering price at the time of the purchase
for which the discount is applicable) already owned by the investor.
CLASS A SHARES -- AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the 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 B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper Mutual Fund listed under "Special Features --Class A Shares--Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
38
<PAGE>
CLASS C SHARES. Class C shares of the Fund and Class C shares of any other
Kemper Mutual Fund listed under "Special Features--Class A Shares--Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, they retain the cost and purchase date of the
shares that were originally purchased and exchanged.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15 Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction, or
advice, including without limitation, accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to KSvC, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares -- General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
39
<PAGE>
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. Except as otherwise permitted by
applicable regulations, 60 days' prior written notice of any termination or
material change will be provided. Exchanges may only be made for funds that are
available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and the portfolios of Investors Municipal Cash Fund are available for sale only
in certain states.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege" except that the $1,000 minimum investment requirement
for the Kemper Fund acquired on exchange is not applicable. This privilege may
not be used for the exchange of shares held in certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from ANY PERSON to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination
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<PAGE>
will become effective as soon as the Shareholder Service Agent has had a
reasonable time to act upon the request. EXPRESS-Transfer cannot be used with
passbook savings accounts or for tax-deferred plans such as Individual
Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50 maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. The Fund may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. The Fund may terminate or modify
this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the Fund's
shares at the offering price 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.
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<PAGE>
The maximum annual rate at which Class B shares may be redeemed (and Class C
shares in their first year following the purchase) under a systematic withdrawal
plan is 10% of the net asset value of the account. Shares are redeemed so that
the payee will receive payment approximately the first of the month. Any income
and capital gain dividends will be automatically reinvested at net asset value.
A sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
KDI will waive the contingent deferred sales charge on redemptions of 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 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.
o 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
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<PAGE>
PERFORMANCE
The Fund may advertise several types of performance information for a class of
shares, including "yield" and "effective yield." Performance information will be
computed separately for Class A, Class B and Class C shares. Each of these
figures is based upon historical results and is not representative of the future
performance of any class of the Fund. If the Fund's fees or expenses are being
waived or absorbed by ZKI, the Fund may also advertise performance information
before and after the effect of the fee waiver or expense absorption.
The Fund's yield is a measure of the net investment income per share earned over
a specific seven-day period expressed as a percentage of the maximum offering
price of the Fund's shares at the end of the period. Yield is an annualized
figure, which means that it is assumed that the Fund generates the same level of
net investment income over a one year period. The effective yield is calculated
similarly, but the net investment income earned is assumed to be compounded when
annualized. The Fund's effective yield will be slightly higher than its yield
due to this compounding.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index 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
43
<PAGE>
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, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among other things, the BANK RATE MONITOR National Index(TM) or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI"). The Fund may 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.
Redemptions of Class B shares within the first six years after purchase may be
subject to a contingent deferred sales charge that ranges from 4% during the
first year to 0% after six years. Redemption of Class C shares within the first
year after purchase may be subject to a 1% contingent deferred sales charge.
Average annual total return figures do, and total return figures may, include
the effect of the contingent deferred sales charge for the Class B shares and
Class C shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares and Class C shares not including the
effect of the applicable contingent deferred sales charge would be reduced if it
were included.
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The Fund's yield will fluctuate. Additional information concerning the Fund's
performance appears in the Statement of Additional Information. Additional
information about the Fund's performance also appears in its Annual Report to
Shareholders, which is available without charge from the Fund.
CAPITAL STRUCTURE
The Fund is the third separate series, or "Portfolio", of Kemper Portfolios
("KP" or the "Trust"), an open-end management investment company organized as a
business trust under the laws of Massachusetts on August 9, 1985. Effective
November 20, 1987, KP pursuant to a reorganization succeeded to the assets and
liabilities of Investment Portfolios, Inc., a Maryland corporation organized on
March 26, 1982. After such reorganization, KP was known as Investment Portfolios
until February 1, 1991, and thereafter until May 28, 1994, as Kemper Investment
Portfolios, when the name of KP became "Kemper Portfolios." Prior to May 28,
1994, the Fund was known as the Money Market Portfolio.
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. The Board of Trustees of the Trust
may authorize the issuance of additional classes and additional Portfolios if
deemed desirable, each with its own investment objective, policies and
restrictions. Since the Trust may offer multiple Portfolios, it is known as a
"series company." Shares of a Portfolio have equal noncumulative voting rights
and equal rights with respect to dividends, assets and liquidation of such
Portfolio and are subject to any preferences, rights or privileges of any
classes of shares of the Portfolio. Currently, the Fund offers four classes of
shares. These are Class A, Class B and Class C shares, as well as Class I
shares, which have different expenses, that may affect performance, and are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of ZKI and its affiliates; and (b) the following investment
advisory clients of ZKI and its investment advisory affiliates that invest at
least $1 million in the Fund: (1) unaffiliated benefit plans, such as qualified
retirement plans (other than individual retirement accounts and self-directed
retirement plans); (2) unaffiliated banks and insurance companies purchasing for
their own accounts; and (3) endowment funds of unaffiliated non-profit
organizations. Shares of the Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive
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voting rights with respect to the Fund's Rule 12b-1 Plan. Shares of each class
also have equal rights with respect to dividends, assets and liquidation subject
to any preferences (such as resulting from different Rule 12b-1 distribution
fees), rights or privileges of any classes of shares of the Fund. Shares of the
Fund are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholder meetings and does not intend to do so.
However, it will hold special meetings as required or deemed desirable for such
purposes as electing trustees, changing fundamental policies or approving an
investment management agreement. Subject to the Agreement and Declaration of
Trust of the Trust, shareholders may remove trustees. If shares of more than one
Portfolio for the Trust are outstanding, shareholders will vote by Portfolio and
not in the aggregate or by class except when voting in the aggregate is required
under the 1940 Act, such as for the election of trustees, or when voting by
class is appropriate.
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Investment Manager
Zurich Kemper Investments, Inc.
[KEMPER LOGO] Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[KEMPER LOGO] KEMPER FUNDS
Long-term investing in a short term world(SM)
[RECYCLED PAPER LOGO] KCRF-1 KDI 712238
