<PAGE> 1
November 20, 1998
Kemper
Important News
for Kemper Quantitative Equity Fund Shareholders
YOUR FUND WILL HOST A SPECIAL MEETING OF SHAREHOLDERS ON THURSDAY, DECEMBER 17,
1998, IN BOSTON, MASSACHUSETTS. THE PURPOSE IS TO VOTE ON CERTAIN IMPORTANT
PROPOSALS AFFECTING YOUR FUND.
THE FIRST FEW PAGES OF THIS BOOKLET SUMMARIZE THE PROPOSALS AND EXPLAIN THE
PROXY PROCESS -- INCLUDING HOW TO CAST YOUR VOTES. BEFORE YOU VOTE, PLEASE READ
THE FULL TEXT OF THE PROXY STATEMENT FOR A COMPLETE UNDERSTANDING OF THE
PROPOSALS.
================================================================================
Q&A
QUESTIONS AND ANSWERS
Q WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL MEETING
OF SHAREHOLDERS ON DECEMBER 17, 1998?
A The Board of Trustees for the Kemper Quantitative Equity Fund (the
"Quantitative Equity Fund" or the "Fund") has called a Special Meeting of
Shareholders for December 17, 1998 at which you will be asked to vote on the
approval of a new investment management agreement and a reorganization (the
"Reorganization") of your Fund into the Kemper Blue Chip Fund (the "Blue Chip
Fund"). At a Shareholder meeting to be held at the same time, Blue Chip Fund
shareholders will be asked to vote on a new investment management agreement and
revisions to certain fundamental investment policies.
Q ARE THERE ANY DIFFERENCES BETWEEN THE FUNDS?
A The Quantitative Equity Fund seeks growth of capital and reduction of risk
through professional management of a diversified portfolio of equity securities.
The Blue Chip Fund seeks long-term growth of capital and of income.
Q WHAT ADVANTAGES WILL THE REORGANIZATION PRODUCE FOR FUND SHAREHOLDERS?
A We expect the proposed Reorganization to lower gross operating expenses as a
percentage of net assets due to the Blue Chip Fund's larger net assets and
greater economies of scale.
Q WHAT IS THE TIMETABLE FOR THE REORGANIZATION?
A The Special Meeting of Shareholders is scheduled for December 17, 1998.
Shareholders of record as of September 22, 1998 will be eligible to vote their
shares at the Special Meeting. If approved, the Reorganization is
[KEMPER FUNDS LOGO]
<PAGE> 2
expected to close on February 5, 1999 or such other date as the parties may
mutually agree.
Q WILL I RECEIVE NEW SHARES IN EXCHANGE FOR MY CURRENT SHARES?
A Yes. Upon approval and completion of the Reorganization, shareholders of the
Quantitative Equity Fund will exchange their shares for shares of the Blue Chip
Fund based upon a specified exchange ratio determined by the ratio of the
respective net asset values of the Funds. You will receive Blue Chip Fund shares
whose aggregate value at the time of issuance will equal the aggregate value of
your Quantitative Equity Fund shares on that date.
Q IF I OWN SHARES IN CERTIFICATE FORM, WILL I NEED TO EXCHANGE THEM FOR
CERTIFICATES OF MY NEW FUND?
A Certificates for Blue Chip Fund shares will not be issued automatically as
part of the Reorganization, although we will send you certificates upon request.
If you currently own Quantitative Equity Fund shares in certificate form, you
will need to return these certificates to the Fund's shareholder service agent
in order to receive new certificates for your Blue Chip Fund shares.
If you prefer, however, you may exchange your certificates for book entry
shares. These shares are held in a convenient computerized system that enables
shareholders to receive a complete and accurate record of their holdings without
having to worry about the safekeeping of certificates or the expense involved
with replacing a lost or stolen certificate. Regardless of the way you choose to
hold your shares after the Reorganization, certificates should be returned to
the Fund's shareholder service agent by certified mail as soon as possible.
Q WILL I HAVE TO PAY ANY FEES OR EXPENSES IN CONNECTION WITH THE REORGANIZATION?
A No. The expenses associated with the Reorganization will be borne by Scudder
Kemper Investments, Inc. ("Scudder Kemper"), the investment adviser for the
Funds.
Q HOW DO MANAGEMENT FEES AND OTHER FUND OPERATING EXPENSES COMPARE BETWEEN THE
TWO FUNDS?
A The investment management fee schedules for the Funds are the same. Fund
management expects that the overall expenses, as a percentage of net assets,
will decrease reflecting the larger net assets and greater economies of scale of
the Blue Chip Fund.
Q WILL THIS REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A The Reorganization is intended to be done on a tax-free basis for federal
income tax purposes. Therefore, you will recognize no gain or loss for federal
income tax purposes as a result of the Reorganization. In addition, the tax
basis and holding period of the Blue Chip Fund shares you receive will be the
same as the tax basis and holding period of your Quantitative Equity Fund
shares.
Q CAN I EXCHANGE OR REDEEM MY QUANTITATIVE EQUITY FUND SHARES BEFORE THE
REORGANIZATION TAKES PLACE?
A You may exchange your Quantitative Equity Fund shares for shares of any other
Kemper Fund, or redeem your shares, at any time. IF YOU CHOOSE TO DO SO, YOUR
REQUEST WILL BE TREATED AS A NORMAL EXCHANGE OR REDEMPTION OF SHARES (SUBJECT TO
ANY APPLICABLE DEFERRED SALES CHARGE) AND WILL BE A TAXABLE TRANSACTION FOR
FEDERAL INCOME TAX PURPOSES.
<PAGE> 3
Q WHAT ELSE WILL I BE VOTING ON?
A You will also be asked to vote on the approval of a new investment management
agreement.
Q WHY AM I BEING ASKED TO VOTE ON A NEW INVESTMENT MANAGEMENT AGREEMENT?
A Zurich Insurance Company ("Zurich"), which is the majority owner of your
Fund's Adviser, Scudder Kemper, has combined its businesses with the financial
services businesses of B.A.T Industries p.l.c. ("B.A.T"). The resulting company,
Zurich Financial Services ("Zurich Financial Services"), has become Zurich's
parent company. Although this transaction will have virtually no effect on the
operations of Scudder Kemper or the Fund, we are asking the Fund's shareholders
to approve a new investment management agreement to assure that there is no
interruption in the services Scudder Kemper provides to the Fund.
As a result of the Zurich-B.A.T transaction, the former shareholders of B.A.T
indirectly own a 43% interest in Zurich through a new holding company, Allied
Zurich p.l.c. This change in ownership of Zurich may be deemed to have caused a
"change in control" of Scudder Kemper, even though Scudder Kemper's operations
will not change as a result. The Investment Company Act of 1940, which regulates
investment companies such as the Fund, requires that fund shareholders approve a
new investment management agreement whenever there is a change in control of a
fund's Adviser (even in the most technical, definitional sense). Pursuant to an
exemptive order issued by the Securities and Exchange Commission, the Fund
entered into a new investment management agreement, subject
to receipt of shareholder approval within 150 days. Accordingly, we are seeking
shareholder approval of the new investment management agreement with the Fund.
Q HOW WILL THE ZURICH-B.A.T TRANSACTION AFFECT ME AS A FUND SHAREHOLDER?
A We do not expect the transaction to affect you as a Fund shareholder. The new
investment management agreement is substantially identical to the former
investment management agreement, except for the dates of execution and
termination. Similarly, the other service arrangements between the Fund and
Scudder Kemper or affiliates of Scudder Kemper will not be affected. If
shareholders do not approve the new investment management agreement, the
agreement will terminate and the Board Members of the Fund will take such action
as they deem to be in the best interests of the Fund and its shareholders.
Q HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL?
A The Board of Trustees for the Quantitative Equity Fund has unanimously agreed
that the new investment management agreement and the Reorganization are in your
best interests and recommends that you vote in favor of them.
Q HOW DO I VOTE MY SHARES?
A You can vote your shares by completing and signing the enclosed proxy card(s),
and mailing them in the enclosed postage-paid envelope. If you need any
assistance, or have any questions regarding the proposals or how to vote your
shares, please call your financial adviser or Kemper at (800) 248-2116.
<PAGE> 4
Q WILL SCUDDER KEMPER CONTACT ME?
A You may receive a call to verify that you received your proxy materials
and to answer any questions you may have about the Reorganization.
THE BOARD MEMBERS OF YOUR FUND, INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE
FUND, SCUDDER KEMPER OR ZURICH, RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE
REORGANIZATION AND FOR APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT.
ABOUT THE PROXY CARD
Because each Fund must vote separately, you are being sent a
proxy card for each Fund account that you have.
Please vote all issues
shown on each proxy card that you receive.
Please vote on each issue using blue or black ink to mark an X in one of the
three boxes provided on each proxy card. On Item 1 (election of board
members), mark--For Both, Withhold Both or Except. If you mark an X in the
Except box, you should print the name or number relating to the individual for
whom you wish to withhold authority. On all other Items, mark--For, Against or
Abstain. Then sign, date and return each of your proxy cards in the
accompanying postage-paid envelope. All registered owners of an account, as
shown in the address on the proxy card, must sign the proxy card. If you are
signing for a corporation, trust or estate, please indicate your title or
position.
We appreciate your continuing support and look forward to serving your future
investment needs.
THANK YOU FOR MAILING YOUR
PROXY CARD PROMPTLY!
PROXY CARD SAMPLE
<PAGE> 5
KEMPER QUANTITATIVE
EQUITY FUND
November 20, 1998
Dear Shareholder:
Enclosed is a proxy asking you to vote on the approval of a new investment
management agreement and the reorganization of your Fund into the Kemper Blue
Chip Fund, a mutual fund that pursues a similar investment objective. If the
proposed reorganization is approved, you would become a shareholder of the Blue
Chip Fund.
The enclosed Prospectus/Proxy Statement contains information you will need to
make an informed decision. For your convenience, we also have provided a brief
question and answer section, which we hope you will find useful as you review
your materials before voting. For more detailed information about the
reorganization, please refer to the Prospectus/ Proxy Statement.
The proposals have been approved by the Trustees for your Fund, who recommend
you vote "FOR" the proposals. Please give this matter your prompt attention. We
will need to receive your proxy card before the shareholder meeting scheduled
for December 17, 1998. YOUR IMMEDIATE RESPONSE WILL HELP SAVE ON THE COSTS OF
ADDITIONAL SOLICITATIONS. We look forward to your participation, and we thank
you for your continued confidence in Kemper.
- ------------------------------------------------------------------------------
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
- ------------------------------------------------------------------------------
Sincerely,
Daniel Pierce
Chairman of the Board
<PAGE> 6
KEMPER QUANTITATIVE EQUITY FUND
222 South Riverside Plaza Chicago, Illinois 60606
Telephone (800) 621-1048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 17, 1998
November 20, 1998
Notice is hereby given that a Special Meeting of Shareholders of the Kemper
Quantitative Equity Fund (the "Quantitative Equity Fund", a "Fund" or a
"Trust"), an open-end management investment company organized as a Massachusetts
business trust, will be held at the offices of Scudder Kemper Investments, Inc.,
13th Floor, Two International Place, Boston, Massachusetts 02110 on December 17,
1998 at 11:00 a.m., Eastern Time (the "Special Meeting"), for the following
purposes:
1. To approve the new investment management agreement created by the
consummation of the Zurich-B.A.T Transaction.
2. To approve an Agreement and Plan of Reorganization pursuant to which the
Quantitative Equity Fund would (i) transfer all of its assets to the Kemper
Blue Chip ("Blue Chip Fund"), an open-end management investment company
organized as a Massachusetts business trust, in exchange for Class A, B, C
and I shares of beneficial interest of the Blue Chip Fund and the Blue Chip
Fund's assumption of the liabilities of the Quantitative Equity Fund, (ii)
distribute such shares of the Blue Chip Fund to the holders of shares of
the Quantitative Equity Fund and (iii) be liquidated, dissolved and
terminated in accordance with the Trust's Declaration of Trust.
3. To transact such other business as may properly come before the Special
Meeting.
<PAGE> 7
Shareholders of record as of the close of business on September 22, 1998 are
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
- ------------------------------------------------------------------------------
IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE, AND TO ASSURE THAT YOUR SHARES
ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT THE SPECIAL
MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ------------------------------------------------------------------------------
Philip J. Collora
VICE PRESIDENT AND SECRETARY
<PAGE> 8
PROSPECTUS/PROXY STATEMENT
KEMPER BLUE CHIP FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
KEMPER QUANTITATIVE EQUITY FUND
This Prospectus/Proxy Statement is being furnished to shareholders of the Kemper
Quantitative Equity Fund (the "Quantitative Equity Fund", a "Fund" or a
"Trust"), an open-end management investment company organized as a Massachusetts
business trust, and relates to the special meeting of shareholders of the Fund
to be held at the offices of Scudder Kemper Investments, Inc., 13th Floor, Two
International Place in Boston, Massachusetts on Thursday, December 17, 1998 at
11:00 a.m., Eastern Time and any and all adjournments thereof (the "Special
Meeting"). Shareholders of record as of the close of business on September 22,
1998 are entitled to vote at the Special Meeting or any adjournment thereof. A
primary purpose of the Special Meeting is to approve or disapprove the proposed
reorganization of the Quantitative Equity Fund into the Kemper Blue Chip Fund
(the "Blue Chip Fund", a "Fund" or a "Trust"), an open-end management investment
company organized as a Massachusetts business trust (the "Reorganization" ). The
Reorganization would result in shareholders of the Quantitative Equity Fund in
effect exchanging their Class A, B, C and I shares of the Quantitative Equity
Fund for corresponding Class A, B, C and I shares of the Blue Chip Fund. The
purpose of the Reorganization is to permit the shareholders of the Quantitative
Equity Fund to lower gross operating expenses as a percentage of net assets due
to the combined fund's larger net assets and greater economies of scale.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/ PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
At the Special Meeting, shareholders of the Quantitative Equity Fund will also
vote on the approval of a new investment management agreement created by
consummation of the B.A.T Transaction.
At a joint shareholder meeting to be held at the same time, Blue Chip Fund
shareholders will be asked to vote on a new investment management agreement and
revisions to certain fundamental investment policies. The investment objective
of the Blue Chip Fund is to seek long-term growth of capital and income. There
can be no assurance that the Blue Chip Fund will achieve its investment
objective. The address, principal
i
<PAGE> 9
executive office and telephone number of the Funds is 222 South Riverside Plaza,
Chicago, Illinois 60606, (312) 537-7000 or (800) 621-1048. The enclosed proxy
and this Prospectus/Proxy Statement are first being sent to shareholders of the
Quantitative Equity Fund on or about November 20, 1998.
This Prospectus/Proxy Statement sets forth concisely the information
shareholders of the Quantitative Equity Fund should know before voting on the
Reorganization (in effect, investing in Class A, B, C and I shares of the Blue
Chip Fund) and constitutes an offering of Class A, B, C and I shares of
beneficial interest of the Blue Chip Fund only. Please read it carefully and
retain it for future reference. A Statement of Additional Information dated
November 20, 1998, relating to this Prospectus/Proxy Statement (the
"Reorganization SAI") has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. A Prospectus (the "Blue
Chip Fund Prospectus") and Statement of Additional Information containing
additional information about the Blue Chip Fund, each dated January 27, 1998 as
supplemented from time to time, have been filed with the SEC and are
incorporated herein by reference. A copy of the Blue Chip Fund Prospectus
accompanies this Prospectus/Proxy Statement. A Prospectus (the " Quantitative
Equity Fund Prospectus") and Statement of Additional Information containing
additional information about the Quantitative Equity Fund, each dated January
27, 1998 as supplemented from time to time, have been filed with the SEC and are
incorporated herein by reference. Copies of the foregoing may be obtained
without charge by calling or writing the Funds at the telephone number or
address shown above. If you wish to request the Reorganization SAI, please ask
for the "Reorganization SAI." IN ADDITION, THE FUND WILL FURNISH, WITHOUT
CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT AND SUBSEQUENT SEMI-ANNUAL
REPORT TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE
FUND BY CALLING (800) 621-1048 OR BY WRITING THE FUND AT 222 SOUTH RIVERSIDE
PLAZA, CHICAGO, ILLINOIS 60606.
No person has been authorized to give any information or make any representation
not contained in this Prospectus/Proxy Statement and, if so given or made, such
information or representation must not be relied upon as having been authorized.
This Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is unlawful to make such offer or solicitation.
Both Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), and in accordance therewith file reports and other
information with the SEC. Such reports, other information and proxy statements
filed by the Funds can be inspected
ii
<PAGE> 10
and copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Office at 500 West
Madison Street, Chicago, Illinois. Copies of such material can also be obtained
from the SEC's Public Reference Branch, Office of Consumer Affairs and
Information Services, Washington, D.C. 20549, at prescribed rates. In addition,
the SEC maintains a Web site (http://www.sec.gov) that contains reports, other
information and proxy statements filed by the Funds, such information is filed
electronically with the SEC through the SEC's Electronic Data Gathering,
Analysis and Retrieval system (EDGAR).
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS NOVEMBER 20, 1998.
iii
<PAGE> 11
PROSPECTUS/PROXY STATEMENT
KEMPER BLUE CHIP FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
KEMPER QUANTITATIVE EQUITY FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL 1. APPROVAL OF A NEW INVESTMENT MANAGEMENT
AGREEMENT.................................... 1
PROPOSAL 2. APPROVAL OF THE REORGANIZATION............... 15
A. Summary............................................ 15
The Reorganization................................. 15
Reasons for the Proposed Reorganization............ 16
Comparison of the Blue Chip Fund with the
Quantitative Equity Fund........................... 17
B. Risk Factors....................................... 33
Similarity of Risks................................ 33
Differences in Risks............................... 34
C. The Proposed Reorganization........................ 34
Terms of the Agreement............................. 35
Description of Securities to be Issued............. 36
Continuation of Shareholder Accounts and Plans;
Share Certificates................................. 37
Certain Federal Income Tax Consequences............ 37
Expenses........................................... 39
Legal Matters...................................... 39
Financial Statements............................... 40
D. Recommendation of the Board........................ 40
OTHER INFORMATION........................................ 41
A. Shareholders of the Blue Chip Fund and the
Quantitative Equity Fund........................... 41
B. Shareholder Proposals.............................. 43
C. Voting Information and Requirements................ 43
</TABLE>
iv
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exhibits
Form of New Investment Management Agreement........ Exhibit A
Investment Objectives and Advisory Fees for Funds
Not Included in this Proxy Statement and Advised by
Scudder Kemper Investments, Inc.................... Exhibit B
Proposed Revisions to Certain Fundamental Policies
of the Blue Chip Fund.............................. Exhibit C
Financial Highlights............................... Exhibit D
Enclosures
Blue Chip Fund and Quantitative Equity Fund
Prospectus
</TABLE>
v
<PAGE> 13
PROPOSAL 1. APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF A NEW INVESTMENT
MANAGEMENT AGREEMENT.
INTRODUCTION.
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser") acts as the
adviser to the Fund pursuant to an investment management agreement entered into
by the Fund and the Adviser. The investment management agreement in effect
between the Fund and the Adviser prior to the consummation of the transaction
between Zurich Insurance Company ("Zurich") and B.A.T Industries p.l.c.
("B.A.T") (the "Zurich-B.A.T Transaction" or the "Transaction"), which is
described below, is referred to in this Proxy Statement as the "Former
Investment Management Agreement." The investment management agreement currently
in effect between the Fund and the Adviser was executed as of the consummation
of the Zurich-B.A.T Transaction and is referred to in this Proxy Statement as
the "New Investment Management Agreement" and, together with Former Investment
Management Agreement, the "Investment Management Agreements."
On June 26, 1997, one of the Adviser's predecessors, Scudder, Stevens & Clark,
Inc. ("Scudder"), entered into an agreement with Zurich pursuant to which
Scudder and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich Kemper Investments, Inc.
("Kemper"), a Zurich subsidiary and Adviser of the Fund, became part of Scudder.
Scudder's name was changed to Scudder Kemper Investments, Inc. The transaction
between Scudder and Zurich (the "Scudder-Zurich Transaction") resulted in the
termination of the Fund's investment management agreement with Kemper. However,
the Former Investment Management Agreement between the Fund and Scudder Kemper
was approved by the Board of the Fund and by the Fund's shareholders.
THE ZURICH-B.A.T TRANSACTION.
On December 22, 1997, Zurich and B.A.T entered into a definitive agreement (the
"Merger Agreement") pursuant to which businesses of Zurich (including Zurich's
almost 70% ownership interest in the Adviser) were to be combined with the
financial services businesses of B.A.T. On October 12, 1997, Zurich and B.A.T
had confirmed that they were engaged in discussions concerning a possible
business combination; on October 16, 1997, Zurich and B.A.T announced that they
had entered into an Agreement in Principle, dated as of October 15, 1997 (the
"Agreement in Principle"), to merge B.A.T's financial services businesses
1
<PAGE> 14
with Zurich's businesses. The Merger Agreement superseded the Agreement in
Principle.
In order to effect this combination, Zurich and B.A.T first reorganized their
respective operations. Zurich became a subsidiary of a new Swiss holding
company, Zurich Allied AG, and Zurich shareholders became Zurich Allied AG
shareholders. At the same time, B.A.T separated its financial services business
from its tobacco-related businesses by spinning off to its shareholders a new
British company, Allied Zurich p.l.c., which now holds B.A.T's financial
services businesses.
Zurich Allied AG then contributed its interest in Zurich, and Allied Zurich
p.l.c. contributed the B.A.T financial services businesses, to a jointly owned
company, Zurich Financial Services ("Zurich Financial Services"). As a result,
upon the completion of the Transaction, the former Zurich shareholders initially
became the owners (through Zurich Allied AG) of 57% of the voting stock of
Zurich Financial Services, and former B.A.T shareholders now own (through Allied
Zurich p.l.c.) 43% of the voting stock of Zurich Financial Services. Zurich
Financial Services now owns Zurich and the financial services businesses
previously owned by B.A.T.
CORPORATE GOVERNANCE.
At the closing of the Zurich-B.A.T Transaction, the parties entered into a
governing agreement that establishes the corporate governance structure for
Zurich Allied AG, Allied Zurich p.l.c. and Zurich Financial Services (the
"Governing Agreement").
The Board of Directors of Zurich Financial Services consists of ten members,
five of whom were initially selected by Zurich and five by B.A.T. Mr. Rolf
Hueppi, Zurich's Chairman and Chief Executive Officer, became Chairman and Chief
Executive Officer of Zurich Financial Services. In addition to his vote by
virtue of his position on the Board of Directors, as Chairman Mr. Hueppi will
have a tie-breaking vote on all matters except recommendations of the Audit
Committee, recommendations of the Remuneration Committee in respect of the
remuneration of the Chairman and the CEO, appointment and removal of the
Chairman and CEO, appointments to the Nominations, Audit and Remuneration
Committees and nominations to the Board of Directors not made through the
Nominations Committee.
The Group Management Board of Zurich Financial Services has been given
responsibility by the Board of Directors for the executive management of Zurich
Financial Services and has wide authority for such purpose. Of the 11 initial
members of the Group Management Board, eight were members of the Corporate
Executive Board of Zurich (including Mr. Edmond D. Villani, CEO of the Adviser,
who is responsible for
2
<PAGE> 15
Global Asset Management for Zurich Financial Services), and three were B.A.T
executives.
The Board of Directors of Zurich Allied AG initially consists of 11 members,
eight of whom are current Zurich directors and three of whom were proposed by
B.A.T. The Board of Directors of Allied Zurich p.l.c. also initially consists of
11 members, eight of whom were B.A.T directors and three of whom were proposed
by Zurich. The parties have agreed that, as soon as possible, the Board of
Directors of Zurich Financial Services, Zurich Allied AG and Allied Zurich
p.l.c. will have identical membership.
Shareholder resolutions of Zurich Financial Services in general require approval
by at least 58% of all shares outstanding.
The Governing Agreement also contains provisions relating to dividend
equalization and provisions intended to ensure equal treatment of Zurich Allied
AG and Allied Zurich p.l.c. shareholders in the event of a takeover bid for
either company.
The B.A.T financial services businesses, which, since the closing of the
Transaction, are owned by Zurich Financial Services, include: the Farmers Group
of Insurance companies; the Eagle Star Insurance business, primarily in the
U.K.; Allied-Dunbar, one of the leading U.K. unit-linked life insurance and
pensions companies; and Threadneedle Asset Management, which was formed
initially to manage the investment assets of Eagle Star and Allied-Dunbar, and
which, at December 31, 1997, had $58.8 billion under management. Overall, at
year-end 1997, the financial services businesses of B.A.T had $79 billion in
assets under management, including $18 billion in third party assets.
Zurich has informed the Fund that the financial services businesses of B.A.T do
not include any of B.A.T's tobacco businesses and that, after careful review,
Zurich has concluded that the tobacco-related liabilities connected with B.A.T's
tobacco business should not adversely affect Zurich or the present Zurich
subsidiaries, including the Adviser.
Governance arrangements that were put in place at the time of acquisition of
Zurich's 70% interest in the Adviser (which are discussed below under "Adviser")
remain unaffected by the Transaction. These arrangements preclude the making of
certain major decisions affecting the Adviser without the approval of the
directors of the Adviser elected by the non-Zurich shareholders of the Adviser.
Consummation of the Zurich-B.A.T Transaction may be deemed to have constituted
an "assignment," as that term is defined in the 1940 Act, of the Fund's Former
Investment Management Agreement with the Adviser. As required by the 1940 Act,
the Former Investment Management Agreement provided for its automatic
termination in the event of its
3
<PAGE> 16
assignment. Accordingly, a New Investment Management Agreement between the Fund
and the Adviser was approved by the Board members of the Fund and is now being
proposed for approval by shareholders of the Fund. The Adviser has received an
exemptive order from the Securities and Exchange Commission (the "SEC" or the
"Commission"), permitting it to implement, without prior shareholder approval,
the New Investment Management Agreement for a period of up to 150 days after the
consummation of the Transaction, which occurred on September 7, 1998. A copy of
the master form of the New Investment Management Agreement is attached hereto as
Exhibit A. In accordance with the exemptive order, the advisory fees paid by the
Fund to the Adviser under a New Investment Management Agreement have been held
in an interest-bearing escrow account, and the Fund will continue to deposit
such fees in escrow until shareholder approval of a New Investment Management
Agreement. If an agreement is not approved, the fees shall be returned to the
Fund. THE NEW INVESTMENT MANAGEMENT AGREEMENT IS SUBSTANTIALLY IDENTICAL TO THE
FORMER INVESTMENT MANAGEMENT AGREEMENT, EXCEPT FOR THE DATES OF EXECUTION AND
TERMINATION. The material terms of the Former Investment Management Agreement
are described under "Description of the Investment Management Agreements" below.
BOARD RECOMMENDATION.
On July 16, 1998, the Board of the Fund met and the Board members, including the
Board members who are not parties to such agreement or "interested persons" (as
defined under the 1940 Act) (the "Non-Interested Trustees" or "Non-Interested
Board members") of any such party, voted to approve the New Investment
Management Agreement and to recommend approval to the shareholders of the Fund.
For information about Board deliberations and the reasons for their
recommendation, please see "Board Evaluation" near the end of this PROPOSAL 1.
DESCRIPTION OF THE INVESTMENT MANAGEMENT AGREEMENT.
Under the Investment Management Agreements, the Adviser provides the Fund with
continuing investment management services. The Adviser also determines which
securities should be purchased, held, or sold, and what portion of the Funds'
assets should be held uninvested, subject to each Declaration of Trust, By-Laws,
investment objectives, policies and restrictions, the provisions of the 1940
Act, and such policies and instructions as the Trustees may have determined.
The Investment Management Agreements provide that the Adviser will provide
continuing management of the assets of the Fund in accordance
4
<PAGE> 17
with the Fund's investment objectives, policies and restrictions, furnish at its
expense office space and facilities to the Fund and render administrative
services on behalf of the Fund necessary for the Fund's operations and not
provided by persons not parties to the agreement including, but not limited to,
preparing reports to and meeting materials for the Board and reports and notices
to Fund shareholders; supervising, negotiating contractual arrangements with, to
the extent appropriate, and monitoring the performance of various third-party
and affiliated service providers to the Fund (such as the Fund's accounting
agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and others) and other persons in any capacity deemed necessary or desirable to
Fund operations; preparing and making filings with the SEC and other regulatory
and self-regulatory organizations, including but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the registration
statement, semi-annual reports on Form N-SAR; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation and filing of
the Fund's federal, state and local tax returns; preparing and filing the Fund's
federal excise tax returns pursuant to Section 4982 of the Internal Revenue Code
of 1986, as amended; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent such books, records and reports and
other information are not maintained by the Fund's custodian or other agents of
the Fund; assisting in establishing accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and other agents as necessary in connection therewith; establishing and
monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as was required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Fund in the conduct of their
business, subject to the direction and control of the Board.
The Fund is responsible for other expenses, including organizational expenses
(including out-of-pocket expenses, but not including the Adviser's overhead or
employee costs); brokers' commissions or other costs
5
<PAGE> 18
of acquiring or disposing of any portfolio securities of the Fund; legal,
auditing and accounting expenses; payment for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if any;
taxes and governmental fees; the fees and expenses of the Fund's transfer agent;
expenses of preparing share certificates and any other expenses, including
clerical expenses, of issuance, offering, distribution, sale, redemption or
repurchase of shares; the fees and expenses of Non-Interested Board members; the
costs of printing and distributing reports, notices and dividends to current
shareholders; and the fees and expenses of the Fund's custodians, subcustodians,
accounting agent, dividend disbursing agents and registrars. The Fund may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for expenses of shareholders' and other meetings, and its expenses
incurred in connection with litigation and the legal obligation it may have to
indemnify officers and Trustees with respect thereto. The Fund is also
responsible for the maintenance of books and records which are required to be
maintained by the Funds's custodian or other agents; telephone, telex,
facsimile, postage and other communications expenses; any fees, dues and
expenses incurred by the Fund in connection with membership in investment
company trade organizations; expenses of printing and mailing prospectuses and
statements of additional information of the Fund and supplements thereto to
current shareholders; costs of stationery; fees payable to the Adviser; expenses
relating to investor and public relations; interest charges, bond premiums and
other insurance expense; freight, insurance and other charges in connection with
the shipment of the Fund's portfolio securities; and other expenses.
The Adviser is responsible for the payment of the compensation and expenses of
all Trustees, officers and executive employees of the Fund (including the Fund's
share of payroll taxes) affiliated with the Adviser and making available,
without expense to the Fund, the services of such Trustees, officers and
employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. The Fund is
responsible for the fees and expenses (specifically including travel expenses
relating to Fund business) of Trustees not affiliated with the Adviser. Under
the Investment Management Agreements, the Adviser also pays the Fund's share of
payroll taxes, as well as expenses, such as travel expenses (or an appropriate
portion thereof), of Trustees and officers of the Fund who are directors,
officers or employees of the Adviser.
For the services and facilities furnished, the Fund pays a monthly investment
management fee based upon the value of the Fund's average daily net assets. See
"PROPOSAL 2. APPROVAL OF THE REORGANIZATION -- Comparison of the Blue Chip Fund
with the Quantitative Equity Fund -- ADVISORY AND OTHER FEES." During the fiscal
year ended
6
<PAGE> 19
November 30, 1997, the Quantitative Equity Fund paid $46,000 to the Adviser.
The Investment Management Agreement further provides that the Adviser shall be
liable for any error of judgement or mistake of law suffered by the Fund or of
any loss resulting from willful misfeasance, bad faith or gross negligence on
the part of the Adviser in the performance of its duties under such agreement.
The Investment Management Agreement also provides that purchase and sale
opportunities, which are suitable for more than one client of the Adviser, will
be allocated by the Adviser in an equitable manner.
The Investment Management Agreement may be terminated without penalty upon sixty
(60) days written notice by either party. The Fund may agree to terminate its
Investment Management Agreement either by a vote of a majority of the
outstanding voting securities of the Fund, or by a vote of its Board. An
Investment Management Agreement may also be terminated at any time without
penalty by the vote of a majority of the outstanding voting securities of the
Fund or by a vote of the Board if a court establishes that the Adviser or any of
its officers or Trustees has taken any action resulting in a breach of the
Adviser's covenants under the Investment Management Agreement. As stated above,
an Investment Management Agreement automatically terminates in the event of its
assignment.
The Adviser has acted as Adviser for the Fund since December 31, 1997. The
Former Investment Management Agreement is dated December 31, 1997, and was last
approved for continuance by the Board on January 20, 1998. The shareholders of
the Fund approved the Former Investment Management Agreement on December 3,
1997. The Former Investment Management Agreement continues until March 1, 1999.
The Former Investment Management Agreement was last submitted to shareholders
for approval in connection with the Zurich/Scudder alliance.
NEW INVESTMENT MANAGEMENT AGREEMENT.
The New Investment Management Agreement for the Fund is dated as of the
consummation of the Transaction, which occurred on September 7, 1998. The New
Investment Management Agreement will be in effect for an initial term ending on
March 1, 1999, and may continue thereafter from year to year only if
specifically approved at least annually by the vote of "a majority of the
outstanding voting securities" of the Fund, or by its Board and, in either
event, the vote of a majority of the Non-interested Board members, cast in
person at a meeting called for such purpose. At a meeting held on September 18,
1998 the Board of the Fund, including a majority of the Non-Interested Trustees,
approved the continuance of the New Investment Management Agreement through
7
<PAGE> 20
September 30, 1999. In the event that shareholders of the Fund do not approve
the New Investment Management Agreement, it will terminate. In such event, the
Board of the Fund will take such action as it deems to be in the best interests
of the Fund and its shareholders.
DIFFERENCES BETWEEN THE FORMER AND NEW INVESTMENT MANAGEMENT AGREEMENT.
The New Investment Management Agreement is substantially identical to the Former
Investment Management Agreement, except for the dates of execution and
termination.
THE ADVISER.
Scudder Kemper Investments, Inc., 345 Park Avenue, New York, New York 10154,
which resulted from the combination of the businesses of Scudder and Kemper, an
indirect subsidiary of Zurich, is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established in 1919
as a partnership and was restructured as a Delaware corporation in 1985. Scudder
launched its first fund in 1928. Kemper launched is first fund in 1948. Since
December 31, 1997, the Adviser has served as investment adviser to both Scudder
and Kemper funds. As of August 31, 1998, the Adviser has more than $241.1
billion in assets under management. The principal source of the Adviser's income
is professional fees received from providing continuing investment advise. The
Adviser provides investment counsel for many individuals and institutions,
including insurance companies, endowments, industrial corporations and financial
and banking organizations.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich owns approximately 70% of the Adviser, with the balance owned
by the Adviser's officers and employees.
8
<PAGE> 21
As stated above, the Adviser is a Delaware corporation. The names, addresses and
principal occupations of the Directors of the Adviser are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------- --------------------
<S> <C>
Stephen R. Beckwith............... Treasurer and Chief Financial
345 Park Avenue, Officer of the Adviser
New York, New York
Lynn S. Birdsong.................. Managing Director of the Adviser
345 Park Avenue,
New York, New York
William Bolinder.................. Member of Zurich Financial
1400 American Lane, Services Group Management Board
Schaumburg, Illinois
Lawrence Cheng.................... Senior Partner of Capital Z
345 Park Avenue, Partners
New York, New York
Gunther Gose...................... Chief Financial Officer of Zurich
Mythenquai 2, Financial Services
Zurich, Switzerland
Kathryn L. Quirk.................. General Counsel of the Adviser
345 Park Avenue,
New York, New York
Cornelia M. Small................. Managing Director of the Adviser
345 Park Avenue,
New York, New York
Edmond D. Villani................. President and Chief Executive
345 Park Avenue, Officer of the Adviser
New York, New York
Rolf Hueppi....................... Chairman of the Board and Chief
Mythenquai 2, Executive Officer of Zurich
Zurich, Switzerland
</TABLE>
The outstanding voting securities of the Adviser are held of record 36.63% by
Zurich Holding Company of America ("ZHCA"), a subsidiary of Zurich; 32.85% by
ZKI Holding Corp. ("ZKIH"), a subsidiary of Zurich; 20.86% by Stephen R.
Beckwith, Lynn S. Birdsong, Kathryn L. Quirk, Cornelia M. Small and Edmond D.
Villani, in their capacity as representatives (the "Management Representatives")
of the Adviser's management holders and retiree holders pursuant to a Second
Amended
9
<PAGE> 22
and Restated Security Holders Agreement (the "Security Holders Agreement") among
the Adviser, Zurich, ZHCA, ZKIH, the Management Representatives, the management
holders, the retiree holders and Edmond D. Villani, as trustee of Scudder Kemper
Investments, Inc. Executive Defined Contribution Plan Trust (the "Plan"); and
9.66% by the Plan. There are no outstanding non-voting securities of the
Adviser.
In connection with the Scudder-Zurich Transaction (described above), pursuant to
which Zurich acquired a two-thirds interest in Scudder for $866.7 million in
cash in December 1997, Daniel Pierce, a Director of the Fund, sold 85.4% of his
holdings in Scudder to Zurich for cash.
Pursuant to the Security Holders Agreement which was entered into in connection
with Scudder-Zurich transaction, the Board of Directors of the Adviser consists
of four directors designated by ZHCA and ZKIH and three directors designated by
Management Representatives.
The Security Holders Agreement requires the approval of a majority of the
Scudder-designated Directors for certain decisions, including changing the name
of the Adviser, effecting an initial public offering before April 15, 2005,
causing the Adviser to engage substantially in non-investment management and
related business, making material acquisitions or divestitures, making material
changes in the Adviser's capital structure, dissolving or liquidating the
Adviser, or entering into certain affiliated transactions with Zurich. The
Security Holders Agreement also provides for various put and call rights with
respect to Adviser's stock held by persons who were employees of the Adviser at
the time of the Scudder-Zurich Transaction, limitations on Zurich's ability to
purchase other asset management companies outside of the Adviser, rights of
Zurich to repurchase the Adviser's stock upon termination of employment of the
Adviser's personnel, and registration rights for stock held by stockholders of
Scudder continuing after the Scudder-Zurich Transaction.
Directors, officers and employees of the Adviser from time to time may enter
into transactions with various banks, including the Fund's custodian bank. It is
the Adviser's opinion that the terms and conditions of those transactions will
not be influenced by existing or potential custodial or other Fund
relationships.
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas City,
Missouri 64105, is the Fund's transfer agent and dividend-paying agent. Pursuant
to a services agreement with IFTC, Kemper Service Company ("KSvC"), an affiliate
of the Adviser, serves as Shareholder Service Agent of the Fund for which IFTC
serves as transfer and dividend-paying agent and, as such, performs all of
IFTC's duties as transfer agent and dividend-paying agent. IFTC receives as
transfer agent, and pays to KSvC, annual account fees plus account set up,
maintenance,
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<PAGE> 23
transaction and out-of-pocket expense reimbursement. Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Adviser, computes net asset value for
the Fund. Currently, SFAC receives no fee for its services to the Fund; however,
subject to Board approval, at some time in the future, SFAC may seek payment for
its services from the Fund. Kemper Distributors, Inc. ("KDI"), a subsidiary of
the Adviser, provides information and administrative services for shareholders
of the Fund pursuant to administrative services agreements. KDI is also the
principal underwriter and distributor of the Fund's shares and acts as agent of
the Fund in the sale of its shares. For the Class B shares and Class C shares of
the Fund, KDI receives a Rule 12b-1 distribution fee at the annual rate of 0.75%
of average daily net assets of each such class.
KSvC and KDI will continue to provide transfer agency and underwriting,
administrative and distribution services, respectively, to the Fund, as
described above, under the current arrangement if the New Investment Management
Agreement is approved.
Exhibit B sets forth (for the funds' last fiscal year end, unless otherwise
noted) the fees and other information regarding investment companies advised by
the Adviser.
BROKERAGE COMMISSIONS ON PORTFOLIO TRANSACTIONS.
To the maximum extent feasible, the Adviser places orders for portfolio
transactions through Scudder Investors Services, Inc. ("SIS"), Two International
Place, Boston, Massachusetts 02110, which in turn places orders on behalf of the
Fund with issuers, underwriters or other brokers and dealers. SIS is a
corporation registered as a broker/dealer and a subsidiary of the Adviser. In
selecting brokers and dealers with which to place portfolio transactions for the
Fund, the Adviser may consider sales of shares of the Fund and of other funds
managed by the Adviser or its affiliates. When it can be done consistently with
the policy of obtaining the most favorable net results, the Adviser may place
such orders with brokers and dealers who supply research, market and statistical
information to the Fund or to the Adviser. SIS does not receive any commissions,
fees or other remuneration from the Fund for this service. Allocation of
portfolio transactions is supervised by the Adviser.
BOARD EVALUATION.
The Board met on July 16, 1998 to consider the Transaction and its effects on
the Fund. The Board met with senior management personnel of the Adviser. The
Board had the assistance of legal counsel, who prepared, among other things, an
analysis of the Board's fiduciary obligations. As a result of their review and
consideration of the Transaction and the proposed new investment management
agreement, the Board of
11
<PAGE> 24
the Fund voted unanimously to approve a New Investment Management Agreement and
to recommend it to the shareholders of the Fund for approval.
In connection with its review, the Adviser represented to the Board that: the
Transaction will have no effect on the operational management of the Fund; the
Transaction will not result in any change in the management or operations of the
Adviser; there will not be any increase in the advisory fee or any change in any
other provision, other than the term, of the investment management agreement as
a result of the Transaction; the Transaction will not adversely affect the
Adviser's financial condition; and the Transaction should expand the Adviser's
global asset management capabilities and enhance the Adviser's research
capabilities, particularly with respect to the United Kingdom and Europe.
In connection with its deliberations, the Board obtained certain assurances from
Zurich, including the following:
- Zurich has provided to the Board such information as is reasonably
necessary to evaluate a New Investment Management and other agreements.
- Zurich looks upon the Adviser as the core of Zurich's global asset
management strategy. With that focus, Zurich will devote to the Adviser
and its affairs all attention and resources that are necessary to provide
for its respective fund top quality investment management, shareholder,
administrative and product distribution services.
- The Transaction will not result in any change in the Fund's investment
objectives or policies.
- The Transaction will not result in any change in either management or
operations of the Adviser or its subsidiaries.
- The Transaction is not expected to result in any adverse change in the
investment management or operations of the Fund; and Zurich neither plans
nor proposes, for the foreseeable future, to make any material change in
the manner in which investment advisory services or other services are
rendered to such Fund which has the potential to have a material adverse
affect upon such Fund.
- Zurich is committed to the continuance, without interruption, of services
to the Fund of the type and quality currently provided by the Adviser and
its subsidiaries, or superior thereto.
- Zurich plans to maintain or enhance the Adviser's facilities and
organization.
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<PAGE> 25
- In order to retain and attract key personnel, Zurich intends for the
Adviser to maintain overall compensation policies and practices at market
levels or better.
- Zurich intends to maintain the distinct brand identity of the Kemper and
Scudder Funds and is committed to strengthening and enhancing both brands
and the distribution channels for both families of Funds, while
maintaining their separate brand identity.
- Zurich will promptly advise the Board of decisions materially affecting
the Adviser organization as they relate to the Fund. Neither this, nor
any of the other above commitments will be altered by Zurich without the
Board's prior consideration.
Zurich assured the Board that it intends to comply with Section 15(f) of the
1940 Act. Section 15(f) provides a non-exclusive safe harbor for an investment
adviser to an investment company or any of its affiliated persons to receive any
amount or benefit in connection with a change in control of the investment
adviser so long as two conditions are met. First, for a period of three years
after the Transaction, at least 75% of the board members of the investment
company must not be "interested persons" of such investment adviser. The
composition of the Board of the Fund, currently and as proposed, would be in
compliance with this provision of Section 15(f). Second, an "unfair burden" must
not be imposed upon the investment company as a result of such transaction or
any express or implied terms, conditions or understandings applicable thereto.
The term "unfair burden" is defined in Section 15(f) to include any arrangement
during the two-year period after the Transaction whereby the investment adviser,
or any interested person of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). Zurich has advised the Board that it is not aware of any
express or implied term, condition, arrangement or understanding that would
impose an "unfair burden" on the Fund as a result of the Transaction. Zurich has
agreed that it, and its affiliates, will take no action that would have the
effect of imposing an "unfair burden" on the Fund as a result of the
Transaction. In furtherance thereof, Zurich has undertaken to pay the costs of
preparing and distributing proxy materials to and of holding the meeting of the
Fund's shareholders as well as other fees and expenses in connection with the
Transaction, including the fees and expenses of legal counsel to the Fund and
the Non-Interested Board members.
13
<PAGE> 26
The Board also considered whether tobacco-related liability connected with
B.A.T's tobacco business could adversely affect the Adviser and the services
provided to the Fund (See "Corporate Governance" above).
In evaluating the New Investment Management Agreement, the Board took into
account that the fees and expenses payable by the Fund under the New Investment
Management Agreement are the same as under the Former Investment Management
Agreement, that the services provided to the Fund are the same and that the
other terms, except for the dates of execution and termination, are
substantially similar. The Board also took into consideration that the portfolio
managers and research personnel would continue their functions with the Adviser
after the Transaction. The Board noted that, in previously approving the Former
Investment Management Agreement, the Board had considered a number of factors,
including: the nature and quality of services provided by the Adviser;
investment performance, both of the Fund itself and relative to that of
competitive investment companies; investment management fees and expense ratios
of the Fund and competitive investment companies; the Adviser profitability from
managing the Fund; fall-out benefits to the Adviser from its relationship to the
Fund, including revenues derived from services provided to the Fund by
affiliates of the Adviser; and the potential benefits to the Adviser and to the
Fund and its shareholders of receiving research services from broker/dealer
firms in connection with the allocation of portfolio transactions to such firms.
The Board discussed the Transaction with the senior management of the Adviser
and Zurich and among themselves. The Board considered that Zurich is a large,
well-established company with substantial resources, and, as noted above, has
undertaken to devote such resources to the Adviser as are necessary to provide
the Fund with top quality services.
As a result of its review and consideration of the Transaction and the New
Investment Management Agreement, at is meeting on July 21, 1998, the Board of
the Fund voted unanimously to approve the New Investment Management Agreement
and to recommend it to the shareholders of the Fund for their approval.
14
<PAGE> 27
PROPOSAL 2. APPROVAL OF THE REORGANIZATION
A. SUMMARY
THE FOLLOWING IS A SUMMARY OF, AND IS QUALIFIED BY REFERENCE TO, THE MORE
COMPLETE INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT AND THE
INFORMATION ATTACHED HERETO OR INCORPORATED HEREIN BY REFERENCE (INCLUDING THE
AGREEMENT AND PLAN OF REORGANIZATION). AS DISCUSSED MORE FULLY BELOW AND
ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, THE BOARD OF TRUSTEES FOR THE
QUANTITATIVE EQUITY FUND (THE "BOARD") BELIEVES THE PROPOSED REORGANIZATION (AS
DEFINED BELOW) IS IN THE BEST INTERESTS OF SHAREHOLDERS OF THE QUANTITATIVE
EQUITY FUND AND WOULD NOT RESULT IN DILUTION OF SHAREHOLDERS' INTERESTS. AS A
RESULT OF THE REORGANIZATION, SHAREHOLDERS OF THE QUANTITATIVE EQUITY FUND WOULD
ACQUIRE AN INTEREST IN THE BLUE CHIP FUND.
Shareholders should read the entire Prospectus/Proxy Statement carefully
together with the Blue Chip Fund Prospectus incorporated herein by reference and
accompanying this Prospectus/Proxy Statement. This Prospectus/Proxy Statement
constitutes an offering of Class A, B, C and I shares of the Blue Chip Fund
only.
THE REORGANIZATION
This Prospectus/Proxy Statement is being furnished to shareholders of the
Quantitative Equity Fund in connection with the proposed combination of the Fund
with and into the Blue Chip Fund pursuant to the terms and conditions of the
Agreement and Plan of Reorganization dated September 18, 1998 between the
Quantitative Equity Fund and the Blue Chip Fund (the "Agreement"). The Agreement
provides that the Quantitative Equity Fund would (i) transfer all of its assets
to the Blue Chip Fund in exchange solely for Class A, B, C and I shares of the
Blue Chip Fund and the Blue Chip Fund's assumption of the liabilities of the
Quantitative Equity Fund, (ii) distribute to each shareholder of the
Quantitative Equity Fund shares of the respective class of shares of the Blue
Chip Fund equal in value to their existing shares of the Quantitative Equity
Fund as a distribution in liquidation of the Fund and (iii) be liquidated,
dissolved and terminated in accordance with the Trust's Declaration of Trust
promptly following the Closing (as defined herein) (the "Reorganization").
The Board of Trustees of the Quantitative Equity Fund has determined that the
Reorganization is in the best interests of the Quantitative Equity Fund and that
the interests of existing shareholders of the Quantitative Equity Fund will not
be diluted as a result of the Reorganization. The Board unanimously approved the
Reorganization and the Agreement on September 18, 1998.
15
<PAGE> 28
The Adviser will pay all of the Funds' costs associated with the Reorganization.
The Board is asking shareholders of the Quantitative Equity Fund to approve the
Reorganization at the Special Meeting to be held on December 17, 1998. If
shareholders of the Quantitative Equity Fund approve the Reorganization, it is
expected that the Closing of the Reorganization will be after the close of
business on February 5, 1999, but it may be a different time as described
herein.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE REORGANIZATION. FOR THE
QUANTITATIVE EQUITY FUND, APPROVAL OF THE REORGANIZATION REQUIRES THE FAVORABLE
VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE.
SEE "VOTING INFORMATION AND REQUIREMENTS" BELOW.
REASONS FOR THE PROPOSED REORGANIZATION
The Board believes that the proposed Reorganization would be in the best
interests of the Quantitative Equity Fund because it would permit the
shareholders of the Fund to lower operating expenses as a percentage of net
assets due to the Blue Chip Fund's larger net assets and greater economies of
scale.
In determining whether to recommend approval of the Reorganization to
shareholders of the Quantitative Equity Fund, the Board considered a number of
factors, including, but not limited to: (i) the expenses and advisory fees
applicable to the Quantitative Equity Fund and the Blue Chip Fund before the
Reorganization and the estimated expense ratios of the Blue Chip Fund after the
Reorganization; (ii) the investment performance of the Quantitative Equity Fund
compared to the Blue Chip Fund; (iii) the terms and conditions of the Agreement
and whether the Reorganization would result in dilution of the Quantitative
Equity Fund's shareholder interests; (iv) the economies of scale potentially
realized through the combination of the Funds; (v) the compatibility of the
Funds' investment objectives; (vi) the compatibility of the Funds' service
features available to shareholders, including the retention of applicable
holding periods and exchange privileges; (vii) the future growth prospects of
the Quantitative Equity Fund; and (viii) the anticipated federal income tax
consequences of the Reorganization.
In this regard, the Board reviewed information provided by the Adviser relating
to the anticipated impact on the shareholders of the Quantitative Equity Fund as
a result of the Reorganization. The Board considered the probability that the
increase in asset levels of the Blue Chip Fund after the Reorganization would
create a Fund with total assets of approximately $558 million, with greater
potential for lower expenses, although there can, of course, be no assurances in
this regard.
16
<PAGE> 29
Based upon this and other factors, the Board unanimously determined that the
Reorganization is in the best interests of the shareholders of the Quantitative
Equity Fund.
COMPARISON OF THE BLUE CHIP FUND WITH THE QUANTITATIVE EQUITY FUND
INVESTMENT OBJECTIVES. The investment objective of the Blue Chip Fund is to seek
growth of capital and of income. The investment objective of the Quantitative
Equity Fund is to seek growth of capital and reduction of risk through
professional management of a diversified portfolio of equity securities.
INVESTMENT POLICIES. Under normal market conditions, the Blue Chip Fund will, as
a fundamental policy, invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of companies with a market capitalization of
at least $1 billion at the time of investment.
In pursuing its objective, the Blue Chip Fund will emphasize investments in
common stocks of large, well known, high quality companies. Companies of this
general type are often referred to as "Blue Chip" companies. "Blue Chip"
companies are generally identified by their substantial capitalization,
established history of earnings and dividends, easy access to credit, good
industry position and superior management structure. "Blue Chip" companies are
believed to generally exhibit less investment risk and less price volatility
than companies lacking these high quality characteristics, such as smaller, less
seasoned companies. In addition, the large market of publicly held shares for
such companies and the generally high trading volume in those share results in a
relatively high degree of liquidity for such investments. The characteristics of
high quality and high liquidity of "Blue Chip" investments should make the
market for such stocks attractive to investors both within and outside the
United States. The Blue Chip Fund will generally attempt to avoid speculative
securities or those with significant speculative characteristics.
Examples of "Blue Chip" companies currently eligible for investment by the Blue
Chip Fund include, but are not limited to, companies such as Pfizer Inc., Merck
& Co., Inc., Hewlett-Packard Company, AT&T Company, General Reinsurance, J.P.
Morgan & Co., Union Pacific Corporation and PepsiCo. Inc. While the Blue Chip
Fund's portfolio will not be limited to the examples noted and need not contain
any specific security, companies of this general quality comprise a relatively
small, select group. In general, the Blue Chip Fund will seek to invest in those
established, high quality companies whose industries are experiencing favorable
secular or cyclical change. Thus, the Blue Chip Fund in seeking its objective
will endeavor to select its investments from among high quality companies
operating in the more attractive industries.
17
<PAGE> 30
As indicated above, the Blue Chip Fund's investment portfolio will normally
consist primarily of common stocks. The Blue Chip Fund may invest to a more
limited extent in preferred stocks, debt securities and securities convertible
into or exchangeable for common stocks, including warrants and rights, when they
are believed to offer opportunities for growth of capital and of income. The
Blue Chip Fund may also purchase options, engage in financial futures
transactions, purchase foreign securities, engage in related foreign currency
transactions and lend its portfolio securities. The Blue Chip Fund may engage in
short sales against-the-box, although it is the Blue Chip Fund's current
intention that no more than 5% of its net assets will be at risk. When, as a
result of market conditions affecting "Blue Chip" companies, a defensive
position is deemed advisable to help preserve capital, the Blue Chip Fund may
temporarily invest without limit in high-grade debt securities, securities of
the U.S. Government and its agencies, and high quality money market instruments,
including repurchase agreements, or retain cash.
The Blue Chip Fund does not generally make investments for short-term profits,
but it is not restricted in policy with regard to portfolio turnover and will
make changes in its investment portfolio from time to time as business and
economic conditions and market prices may dictate and as its investment policy
may require.
There are risks inherent in the investment in any security, including shares of
the Blue Chip Fund. The investment manager attempts to reduce risk through
diversification of the Blue Chip Fund's portfolio and fundamental research;
however, there is no guarantee that such efforts will be successful. The
investment manager believes that there are opportunities for growth of capital
and growth of dividends from investments in "Blue Chip" companies over time. The
Blue Chip Fund's shares are intended for long-term investment.
At a joint Special Meeting of Shareholders of the Blue Chip Fund to be held on
December 17, 1998, shareholders of the Blue Chip Fund will be asked to (i)
eliminate the shareholder approval requirement to amend investment objectives
and unidentified policies, (ii) revise certain fundamental policies to provide
the Fund's Board with maximum flexibility and (iii) eliminate the shareholder
approval requirement to change other identified policies. The proposed revisions
to the investment policies will simplify and modernize such policies and
potentially save the Fund the expense of subsequent meetings. The Quantitative
Equity Fund has investment policies similar to the current investment policies
of the Blue Chip Fund. For more information on the Quantitative Equity Fund's
investment policies see the Quantitative Equity Fund's Prospectus and Statement
of Additional Information. As a consequence of the Reorganization, if the Blue
Chip Fund shareholders approve the revision to the investment policies,
shareholders of the Quantitative Equity Fund
18
<PAGE> 31
will become shareholders of the Blue Chip Fund with the revised investment
policies. For more information on the proposed revisions to certain fundamental
investment policies of the Blue Chip Fund, see Exhibit C attached hereto.
Under normal conditions, the Quantitative Equity Fund will invest at least 65%,
and may invest up to 100%, of its total assets in equity securities. Equity
securities include common stocks, preferred stocks, securities convertible into
or exchangeable for common or preferred stocks, equity investments in
partnerships, joint ventures and other forms of non-corporate investment and
warrants and rights exercisable for equity securities. Normally, the
Quantitative Equity Fund's primary investments will be common stocks of large,
well capitalized companies. The Quantitative Equity Fund currently does not
intend to invest more than 5% of its net assets in debt securities (including
convertible debt securities) during the current year (except for defensive
investments described below). In seeking to achieve the Quantitative Equity
Fund's objectives, the investment manager will emphasize the use of fundamental
research and advanced quantitative technology. There is no assurance that the
management strategy for the Quantitative Equity Fund will be successful or that
the Quantitative Equity Fund will achieve its objectives.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies, whose
stocks are selling at reasonable prices based upon their earnings potential and
whose earnings are growing faster than the market average. Those stocks that are
believed by the investment manager to have superior price appreciation potential
are considered as eligible for investment by the Quantitative Equity Fund. Thus,
a list of eligible investments is developed by the investment manager through a
regimented review process that applies the results of research generated by the
investment manager's analytical staff to well defined quantitative factors
(e.g., return on equity, earnings per share growth) and qualitative factors
(e.g., industry growth, market share). As described below, the Quantitative
Equity Fund's portfolio is structured by the investment manager from eligible
investments by using advanced quantitative technology with a view to reducing
the degree by which the volatility of the portfolio differs from the volatility
of the market for growth stocks generally.
The investment manager believes that there are identifiable macro-economic
factors that are major contributors to the volatility of the stock market.
Examples of these factors include: economic growth, the direction of long-term
interest rates and the credit spread, which is the spread
19
<PAGE> 32
between Treasury and corporate fixed income securities. In selecting among the
growth stocks identified as being eligible for inclusion in the Quantitative
Equity Fund's portfolio, the investment manager applies advanced quantitative
techniques to help structure the portfolio so that normally it is neutrally
weighted to these macro-economic factors. These techniques involve the use of
computer modeling to help select a portfolio of securities believed to be
attractive while simultaneously maintaining a neutral macroeconomic posture.
Neutral weighting means that the exposure of the Quantitative Equity Fund's
portfolio to the effect of these macro-economic factors is, in the view of the
investment manager, generally the same as the exposure of the market for growth
stocks as a whole. The purpose of this process is to reduce the degree by which
the volatility of the portfolio differs from the volatility of the market for
growth stocks and to increase the importance of fundamental research and stock
selection the management process.
Depending upon economic and market conditions, the investment manager may at
times under- or overweight the portfolio with respect to certain macro-economic
factors. In those circumstances, the return potential as well as the risk
profile of the Quantitative Equity Fund's portfolio may be increased relative to
the market for growth stocks generally. However, a primary goal of portfolio
structuring for the Quantitative Equity Fund is to reduce those risks and the
investment manager would normally not be expected to so weight the portfolio.
The Quantitative Equity Fund may also purchase and write options, engage in
financial futures transactions, purchase foreign securities and engage in
related foreign currency transactions and lend its portfolio securities. When a
defensive position is deemed advisable, all or a significant portion of the
Quantitative Equity Fund's assets may be held temporarily in cash or defensive
type securities, such as high-grade debt securities, securities of the U.S.
Government or its agencies and high quality money market instruments, including
repurchase agreements.
The Quantitative Equity Fund does not generally make investments for short-term
profits, but is not restricted in policy with regard to portfolio turnover and
will make changes in its investment portfolio from time to time as business and
economic conditions and market prices may dictate and as its investment policy
may require.
PERFORMANCE INFORMATION. A comparison of the total returns for the Blue Chip
Fund and the Quantitative Equity Fund for the periods ending
20
<PAGE> 33
August 31, 1998 is set forth in the table below. Performance is computed without
adjustment for any sales charges.
<TABLE>
<CAPTION>
TOTAL RETURNS ANNUALIZED TOTAL RETURNS
---------------------- --------------------------------------
INCEPTION CUMULATIVE
FUND CLASS DATE YTD RETURN 1 YEAR 3 YEAR 5 YEAR INCEPTION
- ---- ----- --------- ---------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip............ A 11/23/87 (7.37)% (2.89)% 17.81% 12.72% 12.02%
B 5/31/94 (7.93)% (3.79)% 16.80% N/A 15.86%
C 5/31/94 (7.89)% (3.68)% 16.87% N/A 16.03%
I 11/22/95 (6.97)% (2.40)% N/A N/A 16.81%
Quantitative
Equity............. A 2/15/96 (12.55)% (14.09)% N/A N/A 8.21%
B 2/15/96 (13.08)% (14.70)% N/A N/A 7.30%
C 2/15/96 (12.98)% (14.66)% N/A N/A 7.41%
I 9/9/96 (12.42)% (13.76)% N/A N/A 9.99%
</TABLE>
The total returns are not necessarily indicative of future results. The
performance of an investment company is the result of conditions in the
securities markets, portfolio management and operating expenses. Although
information such as that shown above is useful in reviewing a fund's performance
and in providing some basis for comparison with other investment alternatives,
it should not be used for comparison with other investments using different
reinvestment assumptions or time periods and would not be representative of the
Blue Chip Fund operating with different investment policies.
INVESTMENT ADVISER. The Blue Chip Fund and the Quantitative Equity Fund are
managed by the Adviser. The Adviser's principal office is located at 345 Park
Avenue, New York, New York 10154. The Adviser is described fully above in
Proposal 1.
ADVISORY AND OTHER FEES. The contractual advisory fees of the Blue Chip Fund are
the same as those of the Quantitative Equity Fund. Pursuant to an investment
management agreement the Blue Chip Fund pays the Adviser an annual management
fee at the rates set forth below, which rates are the same rates currently being
paid by the Quantitative Equity Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE ($000) MANAGEMENT FEE
----------------------- --------------
<S> <C>
0-250,000........................................ .58 of 1%
250,000-999,999.................................. .55 of 1%
1,000,000-2,499,999.............................. .53 of 1%
2,500,000-4,999,999.............................. .51 of 1%
5,000,000-7,499,999.............................. .48 of 1%
7,500,000-9,999,999.............................. .46 of 1%
10,000,000-12,499,999............................ .44 of 1%
12,500,000 or more............................... .42 of 1%
</TABLE>
21
<PAGE> 34
For the fiscal year ended October 31, 1997 the Blue Chip Fund paid the Adviser
$2,018,000. For a complete description of the advisory services provided to the
Blue Chip Fund, see the sections of the Blue Chip Fund Prospectus entitled
"INVESTMENT MANAGER AND UNDERWRITER -- Investment Manager."
For the fiscal year ended November 30, 1997 the Quantitative Equity Fund paid
the Adviser $46,000. For a complete description of the advisory services
provided to the Quantitative Equity Fund, see the sections of the Quantitative
Equity Fund Prospectus entitled "INVESTMENT MANAGER AND
UNDERWRITER -- Investment Manager."
UNDERWRITING AND DISTRIBUTION. The Blue Chip Fund has distribution and service
plans which are substantially identical to those adopted by the Quantitative
Equity Fund (the "Distribution and Service Plans"). Pursuant to an underwriting
and distribution services agreement ("distribution agreement") with the Blue
Chip Fund, Kemper Distributors, Inc. ("KDI"), 222 South Riverside Plaza,
Chicago, Illinois 60606, a wholly owned subsidiary of the Adviser, is the
principal underwriter and distributor of the Blue Chip Fund's shares and acts as
agent of the Blue Chip 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 Blue Chip Fund shares for sale under the
securities laws of the various states and the Blue Chip 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 Blue Chip Fund as
principal underwriter for Class A shares and will pay all expenses of
distribution of the Blue Chip Fund's Class A shares under the distribution
agreements not otherwise paid by dealers or other financial services firms.
KDI retains the sales charge upon the purchase of shares and will pay or
allow concessions or discounts to firms for the sale of the Blue Chip
Fund's shares.
CLASS B SHARES. For its services under the distribution agreement, KDI
receives a fee from the Blue Chip Fund, payable monthly, at the annual rate
of .75% of average daily net assets of the Blue Chip 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. KDI currently
compensates firms for sales of Class B shares at a commission rate of
3.75%.
22
<PAGE> 35
CLASS C SHARES. For its services under the distribution agreement, KDI
receives a fee from the Blue Chip Fund, payable monthly, at the annual rate
of .75% of average daily net assets of the Blue Chip Fund attributable to
Class C shares. This fee is accrued daily as an expense of Class C shares.
KDI advances to firms the first year distribution fee at a rate of .75% of
the purchase price of Class C shares. For periods after the first year, KDI
currently pays firms for sales of Class C shares a distribution fee,
payable quarterly, at an annual rate of .75% of net assets attributable to
Class C shares maintained and serviced by the firm and the fee continues
until terminated by KDI or a Fund. KDI also receives any contingent
deferred sales charges.
CLASS I SHARES. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales
charge or a Rule 12b-1 distribution fee.
RULE 12B-1 PLAN. The Blue Chip Fund has Rule 12b-1 plans that provide for fees
payable as an expense of the Class B shares and the Class C shares that are used
by KDI to pay for distribution services for those classes. The 12b-1 plans are
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 an
investment company may, directly or indirectly, bear the expenses of
distributing its shares.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various 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 Funds. 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 each 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
agreements, each Fund pays KDI a fee, payable monthly, at an annual rate of up
to .25% of average daily net assets of Class A, B and C shares of such Fund.
With respect to Class A shares, KDI then pays each firm a service fee at an
annual rate of up to .25% of net assets of those accounts that it maintains and
services for each Fund. With respect to Class B shares and Class C shares, KDI
pays each firm a service fee, normally payable quarterly, at an annual rate of
up to .25% of net assets of those accounts in the Fund that it maintains and
services attributable to Class B shares
23
<PAGE> 36
and Class C shares, respectively. Firms to which service fees may be paid
include affiliates of KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service
fee based on assets in the accounts in the month following the month of
purchase and the fee continues until terminated by KDI or a 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.
CLASS I SHARES. There is no administrative service fee charged to Class I
shares.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each Fund while this procedure is
in effect will depend upon the proportion of Fund assets that is in accounts for
which a firm provides administrative services as well as, with respect to Class
A shares, the date when shares representing such assets were purchased. In
addition, KDI may, from time to time, from its own resources, pay certain firms
additional amounts for ongoing administrative services and assistance provided
to their customers and clients who are shareholders of the Funds.
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 both Funds maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of both Funds held outside the United States. IFTC also is
the Funds' transfer agent and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company ("KSvC") an affiliate of the
Adviser, serves as "Shareholder Service Agent" of the Funds and as such,
performs all of IFTC's duties as
24
<PAGE> 37
transfer agent and dividend-paying agent. The Blue Chip Fund has adopted the
same arrangements. For a description of shareholder service agent fees payable
to the Shareholder Service Agent, see "INVESTMENT MANAGER AND
UNDERWRITER -- Custodian, Transfer Agent and Shareholder Service Agent" in the
Statement of Additional Information.
PORTFOLIO TRANSACTIONS. The Adviser places all orders for purchases and sales of
a Fund's securities. Subject to seeking best execution of orders, the Adviser
may consider sales of shares of a Fund and other funds managed by the Adviser or
its affiliates as a factor in selecting broker-dealers. See "PORTFOLIO
TRANSACTIONS" in the Statement of Additional Information.
25
<PAGE> 38
The tables below set forth (i) the fees and expenses paid by the Blue Chip Fund
and the Quantitative Equity Fund for their last fiscal year, which was October
31, 1997 for the Blue Chip Fund and November 30, 1997 for the Quantitative
Equity Fund and (ii) pro forma expenses reflecting the Reorganization for the
Blue Chip Fund for Class A, B, C and I shares.
EXPENSE COMPARISON TABLE
CLASS A SHARES
<TABLE>
<CAPTION>
BLUE CHIP QUANTITATIVE
FUND EQUITY FUND PRO FORMA(1)
--------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering
Price)....................... 5.75% 5.75% 5.75%
Contingent Deferred Sales
Charge (CDSC) (as a
percentage of the lower of
the original purchase price
or redemption proceeds)(2)... None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees................ .57% .58% .56%
Other Expenses................. .62% .87% .70%
---- ---- ----
Total Fund Operating
Expenses..................... 1.19% 1.45% 1.26%
EXPENSE EXAMPLE OF TOTAL
OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE
PERIOD(3)
One Year....................... $ 69 $ 71 $ 70
Three Years.................... $ 93 $101 $ 95
Five Years..................... $119 $132 $123
Ten Years...................... $194 $221 $201
</TABLE>
- ---------------
Notes to Expense Comparison Table:
(1) The Pro Forma column reflects expenses estimated for the Blue Chip Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization.
(2) Class A shares purchased under the Large Order NAV Purchase Privilege have a
1% contingent deferred sales charge for the first year and .50% for the
second year.
(3) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends.
26
<PAGE> 39
EXPENSE COMPARISON TABLE
CLASS B SHARES
<TABLE>
<CAPTION>
BLUE CHIP QUANTITATIVE
FUND EQUITY FUND PRO FORMA(1)
--------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering
Price)....................... None None None
Contingent Deferred Sales
Charge (CDSC) as a percentage
of the lower of the original
purchase price or redemption
proceeds)(2)................. 4.00-0% 4.00-0% 4.00-0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees................ .57% .58% .56%
Rule 12b-1 Fees................ .75% .75% .75%
Other Expenses................. .74% .94% .77%
------- ------- -------
Total Fund Operating
Expenses..................... 2.06% 2.27% 2.08%
EXPENSE EXAMPLE OF TOTAL
OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE
PERIOD(3)
One Year....................... $ 61 $ 63 $ 61
Three Years.................... $ 95 $101 $ 95
Five Years..................... $131 $142 $132
Ten Years...................... $196 $221 $201
</TABLE>
- ---------------
Notes to Expense Comparison Table:
(1) The Pro Forma column reflects expenses estimated for the Blue Chip Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization.
(2) Contingent deferred sales charges on Class B shares are 4% in the first
year, 3% in the second and third year, 2% in the fourth and fifth year, and
1% in the sixth year.
(3) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends. Assumes
conversion to Class A shares six years after purchase.
27
<PAGE> 40
EXPENSE COMPARISON TABLE
CLASS C SHARES
<TABLE>
<CAPTION>
BLUE CHIP QUANTITATIVE
FUND EQUITY FUND PRO FORMA(1)
--------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering
Price)......................... None None None
Contingent Deferred Sales Charge
(CDSC) as a percentage of the
lower of the original purchase
price or redemption
proceeds)(2)................... 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees.................. .57% .58% .56%
Rule 12b-1 Fees.................. .75% .75% .75%
Other Expenses................... .68% .83% .72%
---- ---- ----
Total Fund Operating Expenses.... 2.00% 2.16% 2.03%
EXPENSE EXAMPLE OF TOTAL
OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE
PERIOD(3)
One Year......................... $ 30 $ 32 $ 31
Three Years...................... $ 63 $ 68 $ 64
Five Years....................... $108 $116 $109
Ten Years........................ $233 $249 $236
</TABLE>
- ---------------
Notes to Expense Comparison Table:
(1) The Pro Forma column reflects expenses estimated for the Blue Chip Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization.
(2) The contingent deferred sales charge for Class C shares is 1% for the first
year.
(3) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends.
28
<PAGE> 41
EXPENSE COMPARISON TABLE
CLASS I SHARES
<TABLE>
<CAPTION>
BLUE CHIP QUANTITATIVE
FUND EQUITY FUND PRO FORMA(1)
--------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchase of a Share (as a
percentage of Offering
Price)......................... None None None
Contingent Deferred Sales Charge
(CDSC) (as a percentage of the
lower of the original purchase
price or redemption
proceeds)...................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees.................. .57% .58% .56%
Other Expenses................... .13% .68% .12%
---- ---- ----
Total Fund Operating Expenses.... .70% 1.26% .68%
EXPENSE EXAMPLE OF TOTAL
OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE
PERIOD(2)
One Year......................... $ 7 $ 13 $ 7
Three Years...................... $22 $ 40 $22
Five Years....................... $39 $ 69 $38
Ten Years........................ $87 $152 $85
</TABLE>
- ---------------
Notes to Expense Comparison Table:
(1) The Pro Forma column reflects expenses estimated for the Blue Chip Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization.
(2) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends.
DISTRIBUTION, PURCHASE, VALUATION, REDEMPTION AND EXCHANGE OF SHARES. The Blue
Chip Fund and the Quantitative Equity Fund offer four classes of shares. The
Class A shares of the Blue Chip Fund and the Quantitative Equity Fund are each
subject to an initial sales charge and annual service fees of .25%. The
following Class A sales charges and commissions apply to the Blue Chip Fund and
the Quantitative Equity Fund.
29
<PAGE> 42
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
--------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING NET ASSET OFFERING
PURCHASE AMOUNT PRICE VALUE PRICE
--------------- -------- --------- --------
<S> <C> <C> <C>
Less than $50,000................. 5.75% 6.10% 5.20%
$50,000 but less than $100,000.... 4.50% 4.71% 4.00%
$100,000 but less than $250,000... 3.50% 3.63% 3.00%
$250,000 but less than $500,000... 2.60% 2.67% 2.25%
$500,000 but less than $1
million......................... 2.00% 2.04% 1.75%
$1 million and over............... --(1) --(1) --(2)
</TABLE>
- ---------------
(1) Class A shares purchased under the Large Order NAV Purchase Privilege have a
1% contingent deferred sales charge for the first year and .50% for the
second year.
(2) Dealer commission is payable by KDI as described in the Blue Chip Fund and
the Quantitative Equity Fund Prospectus.
The initial sales charge applicable to Class A shares of the Blue Chip Fund will
be waived for Class A shares acquired in the Reorganization. Any subsequent
purchases of Class A shares of the Blue Chip Fund after the Reorganization will
be subject to the initial sales charge, excluding Class A shares purchased
through the dividend reinvestment plan.
The Class B shares of the Blue Chip Fund and the Quantitative Equity Fund do not
incur an initial sales charge when purchased, but are subject to a .25% annual
service fee and a Rule 12b-1 distribution fee. Class B shares are also subject
to a contingent deferred sales charge of 4% in the first year, 3% in the second
and third year, 2% in the fourth and fifth year, and 1% in the sixth year.
Class C shares of the Blue Chip Fund and the Quantitative Equity Fund have no
initial sales charges but are subject to a Rule 12b-1 distribution fee and a 1%
contingent deferred sales charge on redemptions made within one year of
purchase.
No contingent deferred sales charge will be imposed on Class B and Class C
shares of the Quantitative Equity Fund in connection with the Reorganization.
The holding period and conversion period for Class B and Class C shares of the
Blue Chip Fund received in connection with the Reorganization will be measured
from the earlier of the time (i) the holder purchased such shares from the
Quantitative Equity Fund or (ii) the holder purchased such shares from any other
Kemper Fund and
30
<PAGE> 43
subsequently exchanged them for shares of the Quantitative Equity Fund.
Class I Shares are only available for purchase by: (a) tax exempt retirement
plans of the Adviser and its affiliates and (b) the following investment
advisory clients of the Adviser 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. Class I shares are offered at net asset value without
an initial sales charge and are not subject to a contingent deferred sales
charge or a Rule 12b-1 distribution fee. Also, there is no administrative
services fee charged to Class I shares. As a result, the overall investment
return will be higher for Class I shares than for Class A, B and C shares.
For a complete description of the Class A, B, C and I shares, see the sections
of the Blue Chip Fund and the Quantitative Equity Fund Prospectus and Statement
of Additional Information entitled "PURCHASE OF SHARES" and "PURCHASE AND
REDEMPTION OF SHARES," respectively.
Shares of the Blue Chip Fund and the Quantitative Equity Fund may be purchased
through a financial adviser, by check, by electronic transfer, and by exchange
from certain other open-end mutual funds distributed by KDI. For a complete
description regarding purchase of shares and exchange of shares of the Funds,
see the sections of the Prospectus and Statement of Additional Information
entitled "PURCHASE OF SHARES" and "PURCHASE AND REDEMPTION OF SHARES,"
respectively.
Shares of the Blue Chip Fund and the Quantitative Equity Fund properly presented
for redemption may be redeemed or exchanged at the next determined net asset
value per share (subject to any applicable deferred sales charge). Shares of
either the Blue Chip Fund or the Quantitative Equity Fund may be redeemed or
exchanged through a financial adviser by mail or by special redemption
privileges (telephone exchange, telephone redemption, by check or by electronic
transfer) subject to limitations described in the prospectus.
The stock transfer books of the Quantitative Equity Fund will be permanently
closed as of the date of Closing. Only redemption requests and transfer
instructions received in proper form by the close of business on the day prior
to the date of Closing will be fulfilled by the Quantitative Equity Fund.
Redemption requests or transfer instructions received by the Quantitative Equity
Fund after that date will be treated by the Fund as requests for the redemption
or instructions for transfer of the shares
31
<PAGE> 44
of the Blue Chip Fund credited to the accounts of the shareholders of the
Quantitative Equity Fund. Redemption requests or transfer instructions received
by the Quantitative Equity Fund after the close of business on the day prior to
the date of Closing will be forwarded to the Blue Chip Fund. For a complete
description of the redemption arrangements for the Funds, see the sections of
the Blue Chip Fund and Quantitative Equity Fund Prospectus entitled "REDEMPTION
OR REPURCHASE OF SHARES."
CAPITALIZATION. The following table sets forth the capitalization of the Blue
Chip and the Quantitative Equity Fund as of September 30, 1998, and the pro
forma capitalization of the Blue Chip Fund as if the Reorganization had occurred
on that date. These numbers may differ at the time of Closing.
32
<PAGE> 45
CAPITALIZATION TABLE AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
QUANTITATIVE
BLUE CHIP FUND EQUITY FUND PRO FORMA(1)
-------------- ------------ ------------
<S> <C> <C> <C>
NET ASSETS
Class A shares..... $358,505,000 $5,401,000 $363,906,000
Class B shares..... $160,690,000 $4,313,000 $165,003,000
Class C shares..... $ 21,431,000 $1,327,000 $ 22,758,000
Class I shares..... $ 5,168,000 $1,880,000 $ 7,048,000
NET ASSET VALUE PER
SHARE
Class A shares..... $15.57 $11.47 $15.57
Class B shares..... $15.51 $11.21 $15.51
Class C shares..... $15.61 $11.24 $15.61
Class I shares..... $15.61 $11.54 $15.61
SHARES OUTSTANDING
Class A shares..... 23,024,000 471,000 23,371,000
Class B shares..... 10,358,000 385,000 10,636,000
Class C shares..... 1,373,000 118,000 1,458,000
Class I shares..... 331,000 163,000 452,000
SHARES AUTHORIZED
Class A shares..... Unlimited Unlimited Unlimited
Class B shares..... Unlimited Unlimited Unlimited
Class C shares..... Unlimited Unlimited Unlimited
Class I shares..... Unlimited Unlimited Unlimited
</TABLE>
- ---------------
(1) The pro forma figures reflect the effect of the Reorganization.
B. RISK FACTORS
SIMILARITY OF RISKS
Under normal market conditions, the Blue Chip Fund will, as a fundamental
policy, invest at least 65%, and may invest up to 100%, of its total assets in
the common stock of companies with a market capitalization of at least $1
billion at the time of investment. Under normal conditions, the Quantitative
Equity Fund will invest at least 65%, and may invest up to 100%, of its total
assets in equity securities. Both Funds' primary investments will be common
stocks of large, well capitalized companies. Both Funds may, however, invest in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks including warrants and rights. Securities of
large, well capitalized companies are believed to generally exhibit less
investment risk and less price volatility than companies lacking these high
quality
33
<PAGE> 46
characteristics, such as smaller, less seasoned companies. In addition, the
large market of publicly held shares for such companies and the generally high
trading volume in those shares results in a relatively high degree of liquidity
for such investments.
Both Funds may also purchase options, engage in financial futures transactions,
purchase foreign securities, engage in related foreign currency transactions and
lend its portfolio securities. The Quantitative Equity Fund may also write
options. For more information, see the sections of the Blue Chip Fund and the
Quantitative Equity Fund Prospectus entitled "INVESTMENT OBJECTIVES, POLICIES
AND RISK FACTORS -- Special Risk Factors -- Foreign Securities" and "INVESTMENT
OBJECTIVES, POLICIES AND RISK FACTORS -- Additional Investment Information."
DIFFERENCES IN RISKS
In general, the Blue Chip Fund will seek to invest in those established, high
quality companies whose industries are experiencing favorable secular or
cyclical change. Thus, the Blue Chip Fund in seeking its objective will endeavor
to select its investments from among high quality companies operating in the
more attractive industries. The Blue Chip Fund will be managed using
quantitative methods but its reliance on quantitative methods will be less than
that of the Quantitative Equity Fund. The Quantitative Equity Fund's portfolio
is structured by the investment manager from eligible investments by using
advanced quantitative technology with a view to reducing the degree by which the
volatility of the portfolio differs from the volatility of the market for growth
stocks generally. In selecting among the growth stocks identified as being
eligible for inclusion in the Quantitative Equity Fund's portfolio, the
investment manager applies advanced quantitative techniques to help structure
the portfolio so that normally it is neutrally weighted to macro-economic
factors. The purpose of this process is to reduce the degree by which the
volatility of the portfolio differs from the market for growth stocks and to
increase the importance of fundamental research and stock selection in the
management process.
C. THE PROPOSED REORGANIZATION
The material features of the Agreement are summarized below. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement attached as
Appendix A to the Reorganization SAI, a copy of which may be obtained without
charge by calling the Funds at (800) 621-1048 and asking for the "Reorganization
SAI."
34
<PAGE> 47
TERMS OF THE AGREEMENT
Pursuant to the Agreement, the Blue Chip Fund, an open-end management investment
company organized as a business trust, would acquire all of the assets and the
liabilities of the Quantitative Equity Fund on the date of the Closing in
consideration for Class A, B, C and I shares of the Blue Chip Fund.
Subject to the Quantitative Equity Fund's shareholders approving the
Reorganization and the approval by the shareholders of the Blue Chip Fund of
Quantitative Equity investment policies, the closing (the "Closing") will occur
on February 5, 1999 or such other date as the Blue Chip Fund and the
Quantitative Equity Fund may mutually agree.
On the date of the Closing, the Quantitative Equity Fund will transfer to the
Blue Chip Fund all of its assets and liabilities. The Blue Chip Fund will in
turn transfer to the Quantitative Equity Fund a number of its Class A, B, C and
I shares equal in value to the value of the net assets of the Fund, transferred
to the Blue Chip Fund as of the date of the Closing, as determined in accordance
with the valuation method described in the Blue Chip Fund's then current
prospectus. In order to minimize any potential for undesirable federal income
and excise tax consequences in connection with the Reorganization, the Blue Chip
Fund and the Quantitative Equity Fund may individually distribute on or before
the Closing all or substantially all of their respective undistributed net
investment income (including net capital gains, if any) as of such date.
The Quantitative Equity Fund will distribute in complete liquidation the Class
A, B, C and I shares of the Blue Chip Fund to the shareholders of the respective
class of the Quantitative Equity Fund promptly after the Closing and then will
be dissolved and terminated in accordance with its Declaration of Trust.
The Quantitative Equity Fund has made certain standard representations and
warranties to the Blue Chip Fund regarding its capitalization, status and
conduct of business.
Unless waived in accordance with the Agreement, the obligations of the parties
to the Agreement are conditioned upon, among other things:
1. the approval of the Reorganization by shareholders of the Quantitative
Equity Fund;
2. the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the transactions
contemplated by the Agreement;
3. the receipt of all necessary approvals, registrations and exemptions
under federal and state laws;
35
<PAGE> 48
4. the truth in all material respects as of the Closing of the
representations and warranties of the parties and performance and
compliance in all material respects with the parties' agreements,
obligations and covenants required by the Agreement;
5. the effectiveness under applicable law of the registration statement of
the Blue Chip Fund of which this Prospectus/Proxy Statement forms a part
and the absence of any stop orders under the Securities Act of 1933, as
amended, pertaining thereto; and
6. the receipt of opinions of counsel relating to, among other things, the
tax-free nature of the Reorganization for federal income tax purposes.
The Agreement may be terminated or amended with respect to the Reorganization by
the mutual consent of the parties either before or after approval thereof by the
shareholders of the Quantitative Equity Fund, provided that no such amendment
after such approval shall be made if it would have a material adverse affect on
the interests of the Quantitative Equity Fund's shareholders. The Agreement also
may be terminated by the non-breaching party if there has been a material
misrepresentation, material breach of any representation or warranty, material
breach of contract or failure of any condition to Closing.
The Board recommends that you vote to approve the Reorganization, as it believes
the Reorganization is in the best interests of the Quantitative Equity Fund and
that the interests of existing shareholders will not be diluted as a result of
consummation of the proposed Reorganization.
DESCRIPTION OF SECURITIES TO BE ISSUED
SHARES OF BENEFICIAL INTEREST. Beneficial interests in the Blue Chip Fund are
represented by transferable Class A, B, C and I shares, no par value per share.
The Declaration of Trust of the Blue Chip Fund permits the trustees, as they
deem necessary or desirable, to create one or more separate investment
portfolios and to issue a separate series of shares for each portfolio and,
subject to compliance with the 1940 Act, to further subdivide the shares of a
series into one or more classes of shares for such portfolio.
VOTING RIGHTS OF SHAREHOLDERS. Holders of shares of the Blue Chip Fund are
entitled to one vote per share on matters as to which they are entitled to vote.
The Blue Chip Fund operates as an open-end management investment company
registered with the SEC under the 1940 Act. In addition to the specific voting
rights described above, shareholders of the Blue Chip Fund are entitled, under
current law, to vote with respect to certain other matters, including changes in
fundamental investment policies and
36
<PAGE> 49
restrictions and the ratification of the selection of independent auditors.
Moreover, under the 1940 Act, shareholders owning not less than 10% of the
outstanding shares of the Blue Chip Fund may request that the board of trustees
call a shareholders' meeting for the purpose of voting upon the removal of
trustee(s).
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES
If the Reorganization is approved, the Blue Chip Fund will establish an account
for each Quantitative Equity Fund shareholder containing the appropriate number
of shares of the Blue Chip Fund. The shareholder services and shareholder
programs of the Blue Chip Fund and the Quantitative Equity Fund are
substantially identical. Shareholders of the Quantitative Equity Fund who are
accumulating shares of the Quantitative Equity Fund under the dividend
reinvestment plan, or who are receiving payment under the systematic withdrawal
plan with respect to shares of the Quantitative Equity Fund, will retain the
same rights and privileges after the Reorganization in connection with the Blue
Chip Fund Class A, B, C or I shares received in the Reorganization through
substantially identical plans maintained by the Blue Chip Fund. Investors
Fiduciary Trust Company ("IFTC"), as custodian, and State Street Bank and Trust
Company, as sub-custodian, have custody of all securities and cash of both Funds
maintained in the United States. The Chase Manhattan Bank, Chase MetroTech
Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of both Funds held outside the United States.
Upon approval of the Reorganization, shareholders of the Quantitative Equity
Fund who currently own shares in certificate form are asked to surrender these
shares to the Quantitative Equity Fund's shareholder service agent, KSvC.
Quantitative Equity Fund shareholders must submit a written request to IFTC in
order to receive certificates for their Blue Chip Fund shares. No certificates
for Blue Chip Fund shares will be issued as part of the Reorganization except
upon request.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences of the Reorganization to shareholders of the Quantitative Equity
Fund and shareholders of the Blue Chip Fund. The discussion set forth below is
for general information only and may not apply to a holder subject to special
treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such
as a holder that is a bank, an insurance company, a dealer in securities, a
tax-exempt organization, a foreign person or that acquired its Class A, B, C or
I shares of the Quantitative Equity Fund pursuant to the exercise of employee
stock options or otherwise as compensation. It is based upon the Code,
37
<PAGE> 50
legislative history, Treasury regulations, judicial authorities, published
positions of the Internal Revenue Service (the "Service") and other relevant
authorities, all as in effect on the date hereof and all of which are subject to
change or different interpretations (possibly on a retroactive basis). This
summary is limited to shareholders who hold their Quantitative Equity Fund
shares as capital assets. No advance rulings have been or will be sought from
the Service regarding any matter discussed in this Prospectus/Proxy Statement.
Accordingly, no assurances can be given that the Service could not successfully
challenge the intended federal income tax treatment described below.
Shareholders should consult their own tax advisers to determine the specific
federal income tax consequences of all transactions relating to the
Reorganization, as well as the effects of state, local and foreign tax laws and
possible changes to the tax laws.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Code. It is a condition to the Closing of
the Reorganization that the Quantitative Equity Fund and the Blue Chip Fund
receive an opinion from Vedder, Price, Kaufman & Kammholz ("Vedder Price")
substantially to the effect that for federal income tax purposes:
1. The acquisition by the Blue Chip Fund of the assets of the Quantitative
Equity Fund in exchange solely for Class A, B, C and I shares of the
Blue Chip Fund and the assumption by the Blue Chip Fund of the
liabilities of the Quantitative Equity Fund will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1) of the Code.
2. No gain or loss will be recognized by the Quantitative Equity Fund or
the Blue Chip Fund upon the transfer to the Blue Chip Fund of the assets
of the Quantitative Equity Fund in exchange solely for the Class A, B, C
and I shares of the Blue Chip Fund and the assumption by the Blue Chip
Fund of the liabilities of the Quantitative Equity Fund.
3. The Blue Chip Fund's basis in the Quantitative Equity Fund's assets
received in the Reorganization will equal the basis of such assets in
the hands of the Quantitative Equity Fund immediately prior to the
transfer, and the Blue Chip Fund's holding period of such assets will,
in each instance, include the period during which the assets were held
by the Quantitative Equity Fund.
4. No gain or loss will be recognized by the shareholders of the
Quantitative Equity Fund upon the exchange of their shares of the
Quantitative Equity Fund solely for the Class A, B, C and I shares of
the Blue Chip Fund.
38
<PAGE> 51
5. The aggregate tax basis in the Class A, B, C and I shares of the Blue
Chip Fund received by the shareholders of the Quantitative Equity Fund
will be the same as the aggregate tax basis of the shares of the
Quantitative Equity Fund surrendered in exchange therefor.
6. The holding period of the Class A, B, C and I shares of the Blue Chip
Fund received by the shareholders of the Quantitative Equity Fund will
include the holding period of the shares of the Quantitative Equity Fund
surrendered in exchange therefor provided such surrendered shares of the
Quantitative Equity Fund are held as capital assets by such shareholder.
In rendering its opinions, Vedder Price will rely upon certain representations
of the management of the Blue Chip Fund and the Quantitative Equity Fund and
assume that the Reorganization will be consummated as described in the Agreement
and that redemptions of shares of the Quantitative Equity Fund occurring prior
to the Closing and post-Closing redemptions of shares of the Quantitative Equity
Fund that are received in the Reorganization will consist solely of redemptions
in the ordinary course of business.
The Blue Chip Fund intends to be taxed under the rules applicable to regulated
investment companies as defined in Section 851 of the Code, which are the same
rules currently applicable to the Quantitative Equity Fund and its shareholders.
EXPENSES
Expenses for the Reorganization will be paid by the Adviser.
As noted above, shareholders of the Quantitative Equity Fund may redeem their
shares or exchange their shares for shares of certain other open-end mutual
funds distributed by KDI at any time prior to the closing of the Reorganization.
See the section of the Blue Chip Fund and the Quantitative Equity Fund
Prospectus entitled "SPECIAL FEATURES." Redemptions and exchanges of shares
generally are taxable transactions for federal income tax purposes, unless your
account is not subject to taxation, such as an individual retirement account or
other tax-qualified retirement plan. Shareholders should consult with their own
tax advisers regarding the federal, state and local tax consequences of
potential transactions.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganization and issuance of Class A, B, C and I shares of the Blue
39
<PAGE> 52
Chip Fund will be passed on by Vedder, Price, Kaufman & Kammholz, 222 North
LaSalle Street, Chicago, Illinois 60601.
FINANCIAL STATEMENTS
The unaudited updated Financial Highlights for the Blue Chip Fund and the
Quantitative Equity Fund are attached hereto as Exhibit D.
In addition, incorporated by reference in their respective entireties are (i)
for the Blue Chip Fund, the unaudited financial statements for the six months
ended April 30, 1998 and the audited financial statements for the fiscal year
ended October 31, 1997, attached as Exhibit C to the Reorganization SAI; and
(ii) for the Quantitative Equity Fund, the unaudited financial statements for
the six months ended May 31, 1998 and the audited financial statements for the
fiscal year ended November 30, 1997 attached as Exhibit E to the Reorganization
SAI.
D. RECOMMENDATION OF THE BOARD
The Board of the Quantitative Equity Fund has unanimously approved the Agreement
and has determined that participation in the Reorganization is in the best
interests of the shareholders of the Quantitative Equity Fund. THE BOARD OF
TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
REORGANIZATION.
40
<PAGE> 53
OTHER INFORMATION
A. SHAREHOLDERS OF THE BLUE CHIP FUND AND THE QUANTITATIVE EQUITY FUND
At the close of business on September 22, 1998, the record date with respect to
the Special Meeting, there were 22,766,486 Class A shares, 10,293,201 Class B
shares, 1,371,613 Class C shares and 333,735 Class I shares, respectively, of
the Blue Chip Fund. As of such date, the trustees and officers of the Blue Chip
Fund as a group own less than 1% of the outstanding shares of the Blue Chip
Fund. The following table sets forth the percentage of each person who, as of
June 30, 1998, owns of record, or is known by the Blue Chip to own of record or
beneficially own 5% or more of any class of shares of the Blue Chip Fund.
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
----- ------------------------- -------------
<S> <C> <C>
B Shares............. National Financial Services Corp. 5.53*
FBO Paul W. Grabow
137 Ball Road
Mountain Lake, NJ 07046
I Shares............. Scudder Kemper Investments, Inc., 8.03*
on behalf of certain accounts for
which it serves as investment
advisor
Scudder Kemper Investments, Inc., 75.66*
on behalf of certain accounts for
which it serves as investment
advisor
</TABLE>
- ---------------
* May be deemed to beneficially own certain shares, but disclaims any beneficial
ownership in such shares.
At the close of business on September 22, 1998, the record date with respect to
the Special Meeting, there were 470,066 Class A shares, 385,058 Class B Shares,
118,309 Class C shares and 162,881 Class I shares, respectively, of the
Quantitative Equity Fund. As of June 30, none of the trustees or officers of the
Quantitative Equity Fund beneficially owned any shares of the Quantitative
Equity Fund except for Donald L. Dunaway who owned 1,333 shares which included
938 shares held with shared investment and voting power. The trustees and
officers of the Quantitative Equity Fund as a group own less than 1% of the
outstanding shares of the Quantitative Equity Fund. The following table sets
forth the percentage of each person who, as of June 30, 1998, owns of record, or
is known by the Quantitative Equity
41
<PAGE> 54
Fund to own of record or beneficially own 5% or more of any class of shares of
the Quantitative Equity Fund.
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
----- ------------------------- -------------
<S> <C> <C>
A Shares............. Zurich Kemper Investments 16.51
Attn.: Julius Gapuz
Accounting Control 31st Floor
222 S. Riverside Plaza
Chicago, IL 60606
Jerome E. Rau & 5.67
Lillian A. Rau JT WROS
1788 Pebble Beach Drive,
Hoffman Est, IL 60194
B Shares............. Kemper Financial Services 22.49
Attn.: Accounting Control
120 S. Lasalle Street, 20th Floor
Chicago, IL 60603
Everen Clearing Corp. Cust 11.72
Attn: Chris Scotto
111 E. Kilbourn Ave.
Milwaukee, WI 53202
C Shares............. Zurich Kemper Investments 65.66
Attn.: Julius Gapuz
Accounting Control, 31st Floor
222 S. Riverside Plaza
Chicago, IL 60606
John E. Susong 7.39
C/O Pension Consulting Svcs
7181 Chagrin Road
Chagrin Falls, OH 44023
I Shares............. Scudder/Kemper Investments Inc. 9.27
Money Purchases Plan #62524
Attn: Peter Drexler
345 Park Ave.
New York, NY 10154
Scudder/Kemper Investments Inc. 75.62
Profit Sharing Plan #61486
Attn: Peter Drexler
345 Park Ave.
New York, NY 10154
</TABLE>
42
<PAGE> 55
B. SHAREHOLDER PROPOSALS
As a general matter, the Blue Chip Fund does not intend to hold future regular
annual or special meetings of its shareholders unless required by the 1940 Act.
In the event the Reorganization is not consummated, the Quantitative Equity Fund
does not intend to hold future regular annual or special meetings of its
shareholders unless required by the 1940 Act. A shareholder wishing to submit a
proposal for inclusion in the Fund's proxy statement for the next meeting of
shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934
should send such written proposal to the Secretary of the Fund within a
reasonable time before the solicitation of proxies for such meeting. The timely
submission of a proposal, however, does not guarantee its inclusion. A
shareholder wishing to provide notice in the manner prescribed by Rule 14a-
4(c)(1) to the Fund of a proposal submitted outside of the process of Rule 14a-8
must submit such written notice to the Secretary of the Fund within a reasonable
time before the solicitation of proxies for such meeting. Timely submission of a
proposal does not necessarily mean that such proposal will be included.
C. VOTING INFORMATION AND REQUIREMENTS
Holders of shares of the Quantitative Equity Fund are entitled to one vote per
share on matters as to which they are entitled to vote. The Quantitative Equity
Fund does not utilize cumulative voting.
Each valid proxy will be voted in accordance with the instructions on the proxy
and as the persons named in the proxy determine on such other business as may
come before the Special Meeting. If no instructions are given, the proxy will be
voted as recommended by the Board on each Proposal. Shareholders who execute
proxies may revoke them at any time before they are voted, either by writing to
the Fund or in person at the time of the Special Meeting. Proxies given by
telephone or electronically transmitted instruments may be counted if obtained
pursuant to procedures designed to verify that such instructions have been
authorized.
Proposal 1, approval of a new investment management agreement, requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Fund as defined in the 1940 Act. The term "majority of the outstanding voting
securities," as defined in the 1940 Act means: the affirmative vote of the
lesser of (1) 67% of the voting securities of a fund present at the meeting if
more than 50% of the outstanding voting securities of a fund are present in
person or by proxy or (2) more than 50% of the outstanding voting securities of
a fund. Proposal 2, approval of the Reorganization, requires the affirmative
vote of a majority of the outstanding shares of the Quantitative Equity Fund
entitled to vote.
43
<PAGE> 56
In tallying shareholder votes, abstentions and broker non-votes (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter) will be
counted for determining whether a quorum is present for purposes of convening
the Special Meeting and will be considered present at the Special Meeting. On
Proposal 1, abstentions will have the effect of an "AGAINST" vote on the
Proposal. Broker non-votes will have the effect of an "AGAINST" vote on the
Proposal if such vote is determined on the basis of obtaining the affirmative
vote of more than 50% of the outstanding voting securities. Broker non-votes
will not constitute "FOR" or "AGAINST" votes, and will be disregarded in
determining the voting securities "present" on each of the Proposal if such vote
is determined on the basis of the affirmative vote of 67% of the voting
securities of the Fund present at the Special Meeting. On Proposal 2,
abstentions and broker non-votes will have the effect of a "AGAINST" vote.
At least 30% of the shares of the Fund must be present, in person or by proxy,
in order to constitute a quorum. Thus the Special Meeting could not take place
on its scheduled date if less than 30% of the shares of the Fund were presented.
If, by the time scheduled for the meeting, a quorum of shareholders of the Fund
is not present or if a quorum is present but sufficient votes in favor of any of
the Proposals are not received, the persons named as proxies currently intend to
propose one or more adjournments of the meeting for the Fund to permit further
soliciting of proxies from shareholders. Any such adjournment will require the
affirmative vote of a majority of the shares of the Fund present (in person or
by proxy). The persons named as proxies will vote in favor of any such
adjournment if they determine that such adjournment and additional solicitation
are reasonable and in the interest of the Fund's shareholders.
The cost of preparing, printing and mailing the enclosed proxy card and proxy
statement and all other costs incurred in connection with the solicitation of
proxies, including any additional solicitation made by letter, telephone or
telegraph, will be paid by Zurich or its affiliates. In addition to solicitation
by mail, certain officers and representatives of each Fund, officers and
employees of Scudder Kemper and certain financial services firms and their
representatives, who will receive no extra compensation for their services, may
solicit proxies by telephone, telegram or personally.
Shareholder Communications Corporation ("SCC") has been engaged to assist in the
solicitation of proxies. As the Special Meeting date approaches, certain
shareholders of each Fund may receive a telephone call from a representative of
SCC if their votes have not yet been received.
44
<PAGE> 57
EXHIBIT A
FORM OF NEW
INVESTMENT MANAGEMENT AGREEMENT
[NAME OF FUND]
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
SEPTEMBER 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
INVESTMENT MANAGEMENT AGREEMENT
Ladies and Gentlemen:
[Name of Fund] (the "Fund") has been established as a Massachusetts business
trust to engage in the business of an investment company. The Fund has issued
shares of beneficial interest (the "Shares").
The Fund has selected you to act as the investment manager of the Fund and to
provide certain other services, as more fully set forth below, and you have
indicated that you are willing to act as such investment manager and to perform
such services under the terms and conditions hereinafter set forth. Accordingly,
the Fund agrees with you as follows:
1. DELIVERY OF DOCUMENTS. The Fund engages in the business of investing
and reinvesting its assets in the manner and in accordance with its
investment objectives, policies and restrictions. The Fund has furnished
you with copies properly certified or authenticated of each of the
following documents related to the Fund:
(a) The Declaration of Trust ("Declaration"), as amended to date.
(b) By-Laws of the Fund as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Fund and the shareholders of
the Fund selecting you as investment manager and approving the form of
this Agreement.
The Fund will furnish you from time to time with copies, properly certified
or authenticated, of all amendments of or supplements, if any, to the
foregoing.
A-1
<PAGE> 58
2. PORTFOLIO MANAGEMENT SERVICES. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the
Fund in accordance with its investment objectives, policies and
restrictions; the applicable provisions of the Investment Company Act of
1940 (the "1940 Act") and the Internal Revenue Code of 1986, as amended,
(the "Code") relating to regulated investment companies and all rules and
regulations thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to policies and
instructions adopted by the Fund's Board of Trustees. In connection
therewith, you shall use reasonable efforts to manage the Fund so that it
will qualify as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder. The Fund shall have the benefit of
the investment analysis and research, the review of current economic
conditions and trends and the consideration of long-range investment policy
generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you
shall be entitled to receive and act upon advice of counsel to the Fund.
You shall also make available to the Fund promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Fund
in complying with the requirements of the 1940 Act and other applicable
laws. To the extent required by law, you shall furnish to regulatory
authorities having the requisite authority any information or reports in
connection with the services provided pursuant to this Agreement which may
be requested in order to ascertain whether the operations of the Fund are
being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance
with Fund policies. You shall determine what portion of the Fund's
portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Fund's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such
additional reports and information as the Fund's officers or Board of
Trustees shall reasonably request.
3. ADMINISTRATIVE SERVICES. In addition to the portfolio management
services specified above in section 2, you shall furnish at your
A-2
<PAGE> 59
expense for the use of the Fund such office space and facilities in the
United States as the Fund may require for its reasonable needs, and you (or
one or more of your affiliates designated by you) shall render to the Fund
administrative services on behalf of the Fund necessary for operating as a
closed-end investment company and not provided by persons not parties to
this Agreement including, but not limited to, preparing reports to and
meeting materials for the Fund's Board of Trustees and reports and notices
to Fund shareholders; supervising, negotiating contractual arrangements
with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing
agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary
or desirable to Fund operations; preparing and making filings with the
Securities and Exchange Commission (the "SEC") and other regulatory and
self-regulatory organizations, including, but not limited to, preliminary
and definitive proxy materials, post-effective amendments to the Fund's
Registration Statement, and semi-annual reports on Form N-SAR; overseeing
the tabulation of proxies by the Fund's transfer agent; assisting in the
preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to
Section 4982 of the Code; providing assistance with investor and public
relations matters; monitoring the valuation of portfolio securities and the
calculation of net asset value; monitoring the registration of Shares of
the Fund under applicable federal and state securities laws; maintaining or
causing to be maintained for the Fund all books, records and reports and
any other information required under the 1940 Act, to the extent that such
books, records and reports and other information are not maintained by the
Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting
with the Fund's independent accountants, legal counsel and the Fund's other
agents as necessary in connection therewith; establishing and monitoring
the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized
person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders,
preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required
for such parties to effect the payment of dividends and distributions; and
otherwise assisting the Fund as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control
A-3
<PAGE> 60
of the Fund's Board of Trustees. Nothing in this Agreement shall be deemed
to shift to you or to diminish the obligations of any agent of the Fund or
any other person not a party to this Agreement which is obligated to
provide services to the Fund.
4. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of
all Trustees, officers and executive employees of the Fund (including the
Fund's share of payroll taxes) who are affiliated persons of you, and you
shall make available, without expense to the Fund, the services of such of
your directors, officers and employees as may duly be elected officers of
the Fund, subject to their individual consent to serve and to any
limitations imposed by law. You shall provide at your expense the portfolio
management services described in section 2 hereof and the administrative
services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Fund's
Trustees and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund:
organization expenses of the Fund (including out of-pocket expenses, but
not including your overhead or employee costs); fees payable to you and to
any other Fund advisors or consultants; legal expenses; auditing and
accounting expenses; maintenance of books and records which are required to
be maintained by the Fund's custodian or other agents of the Fund;
telephone, telex, facsimile, postage and other communications expenses;
taxes and governmental fees; fees, dues and expenses incurred by the Fund
in connection with membership in investment company trade organizations;
fees and expenses of the Fund's accounting agent for which the Fund is
responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services
to pricing agents, accountants, bankers and other specialists, if any;
expenses of preparing share certificates and, except as provided below in
this section 4, other expenses in connection with the issuance, offering,
distribution, sale, redemption or repurchase of securities issued by the
Fund; expenses relating to investor and public relations; expenses and fees
of registering or qualifying Shares of the Fund for sale; interest charges,
bond premiums and other insurance expense; freight, insurance and other
charges in connection with the shipment of the Fund's portfolio securities;
the compensation and all
A-4
<PAGE> 61
expenses (specifically including travel expenses relating to Fund business)
of Trustees, officers and employees of the Fund who are not affiliated
persons of you; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of printing and
distributing reports, notices and dividends to shareholders; expenses of
printing and mailing Prospectuses and statements of additional information
of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Fund; and costs
of shareholders' and other meetings.
5. MANAGEMENT FEE. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 2, 3, and 4 hereof,
the Fund shall pay you in United States Dollars on the last day of each
month the unpaid balance of a fee equal to the excess of (a) 1/12 of [ ] of
1 percent of the average weekly net assets of the Fund for such month; over
(b) any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such
interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then
accrued on the books of the Fund and unpaid.
The net asset value of the Fund shall be calculated at such time or times
as the Trustees may determine in accordance with the provisions of the 1940
Act. On each day when net asset value is not calculated, the net asset
value shall be deemed to be the net asset value as of the close of business
on the last day on which such calculation was made for the purpose of the
foregoing computations.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as
if such waiver or limitation were fully set forth herein.
6. AVOIDANCE OF INCONSISTENT POSITION; SERVICES NOT EXCLUSIVE. In
connection with purchases or sales of portfolio securities and other
investments for the account of the Fund, neither you nor any of your
directors, officers or employees shall act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities and other
investments for the Fund's account with brokers or dealers selected by you
in accordance with Fund policies. If any occasion should arise in which you
give any advice to clients of yours
A-5
<PAGE> 62
concerning the Shares of the Fund, you shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Fund. Whenever
the Fund and one or more other accounts or investment companies advised by
you have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures
believed by you to be equitable to each entity. Similarly, opportunities to
sell securities shall be allocated in a manner believed by you to be
equitable. The Fund recognizes that in some cases this procedure may
adversely affect the size of the position that may be acquired or disposed
of for the Fund.
7. LIMITATION OF LIABILITY OF MANAGER. As an inducement to your
undertaking to render services pursuant to this Agreement, the Fund agrees
that you shall not be liable under this Agreement for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect you against any
liability to the Fund or its shareholders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties, or by reason of your reckless disregard of
your obligations and duties hereunder.
8. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain
in force until September 30, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder and any applicable SEC exemptive
order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of the Fund or by the Fund's Board of
Trustees on 60 days' written notice to you, or by you on
A-6
<PAGE> 63
60 days' written notice to the Fund. This Agreement shall terminate
automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund in the event that
it shall have been established by a court of competent jurisdiction that
you or any of your officers or directors has taken any action which results
in a breach of your covenants set forth herein.
9. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective until approved in a manner consistent with the
1940 Act and rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
10. LIMITATION OF LIABILITY FOR CLAIMS. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, provides that the name
"[name of Fund]" refers to the Trustees under the Declaration collectively
as Trustees and not as individuals or personally, and that no shareholder
of the Fund, or Trustee, officer, employee or agent of the Fund, shall be
subject to claims against or obligations of the Fund to any extent
whatsoever, but that the Fund estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by
the Fund pursuant to this Agreement shall be limited in all cases to the
Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund, or from
any Trustee, officer, employee or agent of the Fund.
11. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the
A-7
<PAGE> 64
outstanding voting securities"), as from time to time amended, shall be
applied, subject, however, to such exemptions as may be granted by the SEC
by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, or in a manner which
would cause the Fund to fail to comply with the requirements of Subchapter
M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
[Name of Fund]
By:
-------------------------------------------------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER
INVESTMENTS, INC.
By:
-------------------------------------------------------------
Name
-----------------------------------------------------------------
Title
A-8
<PAGE> 65
EXHIBIT B
INVESTMENT OBJECTIVES AND ADVISORY FEES FOR FUNDS NOT INCLUDED IN THIS PROXY
STATEMENT AND ADVISED BY SCUDDER KEMPER INVESTMENTS, INC.
SCUDDER FUNDS+
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
MONEY MARKET FUNDS
Government Money Market Series High level of current income consistent with 0.250% of net assets++ $ 83,870,139
preservation of capital and liquidity.
Money Market Series High level of current income consistent with 0.250% of net assets++ $1,041,528,715
preservation of capital and liquidity.
Scudder Cash Investment Trust Stability of capital while maintaining 0.500% to $250 million $1,182,012,567
liquidity of capital and providing current 0.450% next $250 million
income. 0.400% next $500 million
0.350% thereafter++
Scudder U.S. Treasury Money Safety, liquidity, and stability of capital 0.500% of net assets++ $ 388,528,203
Fund and, consistent therewith, current income.
TAX FREE MONEY MARKET FUNDS
Scudder California Tax Free Stability of capital and the maintenance of a 0.500% of net assets $ 218,236
Money Fund constant net asset value of $1.00 per share
while providing California taxpayers income
exempt from both California personal and
regular federal income tax.
Scudder New York Tax Free Stability of capital while providing New York 0.500% of net assets++ $ 92,514,040
Money Fund taxpayers income exempt from New York state and
New York City personal income taxes and regular
federal income tax.
</TABLE>
B-1
<PAGE> 66
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Tax Free Money Fund Income exempt from regular federal income tax 0.500% to $500 million $ 283,055,833
and stability of principal through investments 0.480% thereafter++
in municipal securities.
Tax Free Money Market Series High level of current income exempt from 0.250% of net assets++ $ 270,225,034
federal income tax, consistent with
preservation of capital and liquidity.
TAX FREE FUNDS
Scudder California Tax Free To provide California taxpayers with income 0.625% to $200 million $ 324,448,844
Fund exempt from both California personal income tax 0.600% thereafter
and regular federal income tax primarily
through investment in California municipal
securities.
Scudder High Yield Tax Free High level of income, exempt from regular 0.650% to $300 million $ 336,690,734
Fund federal income tax, from an actively managed 0.600% thereafter
portfolio consisting primarily of
investment-grade municipal securities.
Scudder Limited Term Tax Free As high a level of income exempt from regular 0.600% of net assets++ $ 116,876,371
Fund federal income tax as is consistent with a high
degree of principal stability.
Scudder Managed Municipal Income exempt from regular federal income tax 0.550% to $200 million $ 728,308,005
Bonds primarily through investments in high-grade, 0.500% next $500 million
long term municipal securities. 0.475% thereafter
Scudder Massachusetts Limited As high a level of income exempt from 0.600% of net assets++ $ 79,526,656
Term Tax Free Fund Massachusetts state personal income tax and
regular federal income tax as is consistent
with a high degree of price stability through
investments primarily in investment-grade
municipal securities.
</TABLE>
B-2
<PAGE> 67
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Massachusetts Tax Free To provide Massachusetts taxpayers income 0.600% to $400 million $ 373,905,826
Fund exempt from both Massachusetts personal income 0.525% thereafter*
tax and regular federal income tax through
investment primarily in investment-grade
municipal securities with long term maturities.
Scudder Medium Term Tax Free High level of income free from regular federal 0.600% to $500 million $ 656,951,039
Fund income taxes and limited principal fluctuation 0.500% thereafter
through investment primarily in high-grade,
intermediate term municipal bonds.
Scudder New York Tax Free Fund To provide New York taxpayers income exempt 0.625% to $200 million $ 195,731,396
from New York state and New York City personal 0.600% thereafter
income taxes and regular federal income tax
through investment primarily in New York
municipal securities.
Scudder Ohio Tax Free Fund To provide Ohio taxpayers income exempt from 0.600% of net assets++ $ 94,450,782
both Ohio personal income tax and regular
federal income tax through investment primarily
in investment-grade municipal securities.
Scudder Pennsylvania Tax Free To provide Pennsylvania taxpayers income exempt 0.600% of net assets++ $ 78,695,405
Fund from both Pennsylvania personal income tax and
regular federal income tax through investment
primarily in investment-grade municipal
securities.
TAX MANAGED FUNDS
Scudder Tax Managed Growth Long term growth of capital on an after-tax 0.800% of net assets N/A**
Fund basis primarily through equity investment in
established, medium- to large-sized U.S.
companies with leading competitive positions.
Scudder Tax Managed Small Long term capital growth on an after-tax basis 0.900% of net assets N/A**
Company Fund primarily through investment primarily in
undervalued stocks of small U.S. companies.
</TABLE>
B-3
<PAGE> 68
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
U.S. INCOME FUNDS
Scudder Corporate Bond Fund A high level of current income through 0.650% of net assets N/A**
investment primarily in investment-grade
corporate debt securities.
Scudder GNMA Fund High current income primarily from U.S. 0.650% to $200 million $ 392,444,820
Government guaranteed mortgage-backed Ginnie 0.600% next $300 million
Mae securities. 0.550% thereafter
Scudder High Yield Bond Fund A high level of current income and, 0.700% of net assets++ $ 176,221,237
secondarily, capital appreciation through
investment primarily in below investment-grade
domestic debt securities.
Scudder Income Fund A high level of income, consistent with the 0.650% to $200 million $ 695,255,717
prudent investment of capital, through a 0.600% next $300 million
flexible investment program emphasizing 0.550% thereafter
high-grade bonds.
Scudder Short Term Bond Fund High level of income consistent with a high 0.600% to $500 million $1,165,531,162
degree of principal stability by investing 0.500% next $500 million
primarily in high quality short-term bonds 0.450% next $500 million
0.400% next $500 million
0.375% next $1 billion
0.350% thereafter
Scudder Zero Coupon 2000 Fund As high an investment return over a selected 0.600% of net assets++ $ 20,453,972
period as is consistent with investment in U.S.
Government securities and the minimization of
reinvestment risk.
GLOBAL INCOME FUNDS
Scudder Emerging Markets High current income and, secondarily, long term 1.000% of net assets $ 323,628,082
Income Fund capital appreciation by investing primarily in
high-yielding debt securities issued by
governments and corporations in emerging
markets.
</TABLE>
B-4
<PAGE> 69
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Global Bond Fund Total return with an emphasis on current income 0.750% to $1 billion $ 135,113,465
by investing primarily in high-grade bonds 0.700% thereafter++
denominated in foreign currencies and the U.S.
dollar. As a secondary objective, the Fund will
seek capital appreciation.
Scudder International Bond Income primarily by investing in a managed 0.850% to $1 billion $ 145,818,767
Fund portfolio of high-grade international bonds 0.800% thereafter++
and, secondarily, protection and possible
enhancement of principal value by actively
managing currency, bond market and maturity
exposure and by security selection.
ASSET ALLOCATION FUNDS
Scudder Pathway Balanced Balance of growth and income by investing in a There will be no fee as $ 192,145,173
Portfolio mix of Scudder money market, bond and equity the Manager will receive
mutual funds. a fee from the underlying
funds.
Scudder Pathway Conservative Current income and, secondarily, long term There will be no fee as $ 16,971,681
Portfolio growth of capital by investing substantially in the Manager will receive
Scudder bond mutual funds, but will have some a fee from the underlying
exposure to Scudder equity mutual funds. funds.
Scudder Pathway Growth Long term growth of capital by investing There will be no fee as $ 49,574,256
Portfolio predominantly in Scudder equity mutual funds the Manager will receive
designed to provide long term growth. a fee from the underlying
funds.
Scudder Pathway International Maximize total return, consisting of capital There will be no fee as $ 11,728,045
Portfolio appreciation plus dividend income and interest the Manager will receive
by investing in a select mix of established a fee from the underlying
international and global Scudder Funds. funds.
</TABLE>
B-5
<PAGE> 70
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
U.S. GROWTH AND INCOME FUNDS
Scudder Balanced Fund A balance of growth and income from a 0.700% of net assets++ $ 158,711,908
diversified portfolio of equity and
fixed-income securities and long term
preservation of capital through a quality-
oriented investment approach designed to reduce
risk.
Scudder Dividend & Growth Fund High current income and long term growth of 0.750% of net assets N/A**
capital through investment in income paying
equity securities.
Scudder Growth and Income Fund Long term growth of capital, current income and 0.600% to $500 million $6,833,584,122
growth of income. 0.550% next $500 million
0.500% next $500 million
0.475% next $500 million
0.450% next $1 billion
0.425% next $1.5 billion
0.405% next $1.5 billion
0.3875% next $4 billion
0.370% over $10 billion*
U.S. GROWTH FUNDS
Classic Growth Fund Long term growth of capital with reduced share 0.700% of net assets++ $ 53,225,783
price volatility compared to other growth
mutual funds.
Scudder 21st Century Growth Long term growth of capital by investing 1.000% of net assets++ $ 23,296,176
Fund primarily in the securities of emerging growth
companies poised to be leaders in the 21st
century.
Scudder Development Fund Long term growth of capital by investing 1.000% to $500 million $ 845,405,075
primarily in securities of small and medium 0.950% next $500 million
size growth companies. 0.900% thereafter
</TABLE>
B-6
<PAGE> 71
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Financial Services Long term growth of capital by investing 0.750% of net assets++ $ 36,926,469@
Fund primarily in common stocks and other equity
securities of companies in a group of related
industries.
Scudder Health Care Fund Long term growth of capital by investing 0.850% of next assets++ $ 40,923,873@
primarily in common stocks and other equity
securities of companies in a group of related
industries.
Scudder Large Company Growth Long term growth of capital through investment 0.700% of net assets $ 288,064,975
Fund (formerly Scudder primarily in the equity securities of seasoned,
Quality Growth Fund) financially strong
U.S. growth companies.
Scudder Large Company Value Maximize long term capital appreciation through 0.750% to $500 million $2,212,733,138
Fund (formerly Scudder a value driven investment program. 0.650% next $500 million
Capital Growth Fund) 0.600% next $500 million
0.550% next $500 million
0.500% next $1.0 billion*
Scudder Micro Cap Fund Long term growth of capital by investing 0.750% of net assets $ 91,627,404
primarily in a diversified portfolio of U.S.
micro-cap common stocks.
Scudder Real Estate Investment Long term capital growth and current income by 0.800% of net assets++ $ 20,435,489
Fund investing primarily in equity securities of
companies in the real estate industry.
Scudder S&P 500 Index Fund Investment results that, before expenses, 0.150% of net assets++ $ 16,912,276
correspond to the total return of common stocks
publicly traded in the United States, as
represented by the Standard & Poor's 500
Composite Stock Price Index.
Scudder Small Company Value Long term growth of capital by investing 0.750% of net assets $ 123,398,822
Fund primarily in undervalued stocks of small U.S.
companies.
Scudder Technology Fund Long term growth of capital by investing 0.850% of net assets++ $ 37,159,344@
primarily in common stocks and other equity
securities of companies in a group of related
industries.
</TABLE>
B-7
<PAGE> 72
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Value Fund Long term growth of capital through investment 0.700% to $500 million $ 297,979,779
in undervalued equity securities. 0.650% over $500 million*
GLOBAL GROWTH FUNDS
Global Discovery Fund Above-average capital appreciation over the 1.100% of net assets $ 349,121,954
long term by investing primarily in the equity
securities of small companies located
throughout the world.
Scudder Emerging Markets Long term growth of capital primarily through 1.25% of net assets++ $ 219,624,481
Growth Fund equity investment in emerging markets around
the globe.
Scudder Global Fund Long term growth of capital through a 1.000% to $500 million $1,766,207,742
diversified portfolio of marketable securities, 0.950% next $500 million
primarily equity securities, including common 0.900% next $500 million
stock, preferred stocks and debt securities 0.850% over $1.5 billion
convertible into common stocks.
Scudder Gold Fund Maximum return (principal change and income) 1.000% of net assets $ 132,131,545
consistent with investing in a portfolio of
gold-related equity securities and gold.
Scudder Greater Europe Growth Long term growth of capital through investments 1.00% to $1 billion $ 195,514,335
Fund primarily in the equity securities of European 0.90% thereafter*
companies.
Scudder International Fund Long term growth of capital primarily from 0.900% to $500 million $2,884,919,345
foreign equity securities. 0.850% next $500 million
0.800% next $1 billion
0.750% next $1 billion
0.700% thereafter
Scudder International Growth Long term growth of capital and current income 1.000% of net assets++ $ 48,880,164
and Income Fund primarily from foreign equity securities.
Scudder International Growth Long term capital appreciation through 1.000% of net assets N/A**
Fund investment primarily in the equity securities
of foreign companies with high growth
potential.
</TABLE>
B-8
<PAGE> 73
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder International Value Long term capital appreciation through 1.000% of net assets N/A**
Fund investment primarily in undervalued foreign
equity securities.
Scudder Latin America Fund Long term capital appreciation through 1.250% to $1 billion $ 882,555,049
investment primarily in the securities of Latin 1.150% thereafter
American issuers.
Scudder Pacific Opportunities Long term growth of capital primarily through 1.100% of net assets $ 147,276,692
Fund investment in the equity securities of Pacific
Basin companies, excluding Japan.
The Japan Fund, Inc. Long term capital appreciation through 0.850% to $100 million $ 265,181,931
investment primarily in equity securities, 0.750% next $200 million
(including American Depository Receipts) of 0.700% next $300 million
Japanese companies. 0.650% thereafter
CLOSED-END FUNDS
The Argentina Fund, Inc. Long term capital appreciation through Adviser: $ 135,327,320
investment primarily in equity securities of 1.100% of net assets
Argentine issuers. Sub-Adviser:
Paid by Adviser. 0.100%
of net assets
The Brazil Fund, Inc. Long term capital appreciation through 1.200% to $150 million $ 429,429,751
investment primarily in equity securities of 1.050% next $150 million
Brazilian issuers. 1.000% next $200 million
0.900% thereafter
Administrator: Receives
an annual fee of $50,000
</TABLE>
B-9
<PAGE> 74
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
The Korea Fund, Inc. Long term capital appreciation through Adviser: $ 406,244,000
investment primarily in equity securities of 1.150% to $50 million
Korean companies. 1.100% next $50 million
1.000% next $250 million
0.950% next $400 million
0.900% thereafter
Sub-Adviser -- Daewoo:
Paid by Adviser.
0.2875% to $50 million
0.275% next $50 million
0.250% next $250 million
0.2375% next $400 million
0.225% thereafter
Montgomery Street Income High level of current income consistent with 0.500% to $150 million $ 207,315,702
Securities, Inc. prudent investment risks through a diversified 0.450% next $50 million
portfolio primarily of debt securities. 0.400% thereafter
Scudder Global High Income High level of current income and, secondarily, 1.200% of net assets $ 80,721,844
Fund, Inc. (formerly The capital appreciation through investment
Latin America Dollar Income principally in dollar-denominated Latin
Fund, Inc.) American debt instruments.
Scudder New Asia Fund, Inc. Long term capital appreciation through 1.250% to $75 million $ 98,866,168
investment primarily in equity securities of 1.150% next $125 million
Asian companies. 1.100% thereafter
Scudder New Europe Fund, Inc. Long term capital appreciation through 1.250% to $75 million $ 320,293,393
investment primarily in equity securities of 1.150% next $125 million
companies traded on smaller or emerging 1.100% thereafter
European markets and companies that are viewed
as likely to benefit from changes and
developments throughout Europe.
</TABLE>
B-10
<PAGE> 75
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Scudder Spain and Portugal Long term capital appreciation through Adviser: $ 112,909,567
Fund, Inc. investment primarily in equity securities of 1.000% of net assets
Spanish & Portuguese issuers. Administrator:
0.200% of net assets
INSURANCE PRODUCTS
Scudder Variable Life Balance of growth and income, as well as long 0.475% of net assets $ 118,373,215
Investment Fund Balanced term preservation of capital, from a
Portfolio diversified portfolio of equity and fixed
income securities.
Scudder Variable Life High level of income from a high quality 0.475% of net assets $ 81,387,032
Investment Fund Bond portfolio of bonds.
Portfolio
Scudder Variable Life Maximize long term capital growth from a 0.475% to $500 million $ 676,317,582
Investment Fund Capital portfolio consisting primarily of equity 0.450% next $500 million
Growth Portfolio securities. 0.425% on assets
over $1.0 billion***
Scudder Variable Life Above-average capital appreciation over the 0.975% of net assets++ $ 20,115,141
Investment Fund Global long term by investing primarily in the equity
Discovery Portfolio securities of small companies located
throughout the world.
Scudder Variable Life Long term growth of capital, current income and 0.475% of net assets $ 163,603,606
Investment Fund Growth and growth of income from a portfolio consisting
Income Portfolio primarily of common stocks and securities
convertible into common stocks.
Scudder Variable Life Long term growth of capital principally from a 0.875% to $500 million $ 427,237,880
Investment Fund diversified portfolio of foreign equity 0.725% thereafter
International Portfolio securities.
Scudder Variable Life Stability of capital and current income from a 0.370% of net assets $ 102,576,377
Investment Fund Money Market portfolio of money market instruments.
Portfolio
</TABLE>
B-11
<PAGE> 76
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
AARP FUNDS
AARP Balanced Stock and Bond Long term capital growth and income, consistent 0.350% to $2 billion $ 638,356,257
Fund with a share price more stable than other 0.330% next $2 billion
balanced mutual funds, through investment in a 0.300% next $2 billion
combination of stocks, bonds and cash reserves. 0.280% next $2 billion
0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.190% of net assets
AARP Bond Fund for Income High level of current income, consistent with 0.350% to $2 billion $ 58,324,146
greater share price stability than other long 0.330% next $2 billion
term bond mutual funds, through investment 0.300% next $2 billion
primarily in investment-grade debt securities. 0.280% next $2 billion
0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter++
INDIVIDUAL FUND FEE
0.280% of net assets
AARP Capital Growth Fund Long term capital growth, consistent with a 0.350% to $2 billion $1,228,379,954
share price more stable than other growth 0.330% next $2 billion
funds, through investment in a combination of 0.280% next $2 billion
common stocks and securities convertible into 0.260% next $3 billion
common stocks. 0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.320% of net assets
AARP Diversified Growth Long term growth of capital through investment There will be no fee as $ 61,796,818
Portfolio primarily in AARP stock mutual funds. the manager will receive
a fee from the underlying
funds.
</TABLE>
B-12
<PAGE> 77
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
AARP Diversified Income with Current income with modest long term There will be no fee as $ 43,446,418
Growth Portfolio appreciation through investment primarily in the manager will receive
AARP bond mutual funds. a fee from the underlying
funds.
AARP Global Growth Fund Long term capital growth, consistent with a 0.350% to $2 billion $ 148,029,373
share price more stable than other global 0.330% next $2 billion
funds, through investment primarily in common 0.300% next $2 billion
stocks of established corporations in a wide 0.280% next $2 billion
variety of developed countries. 0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.550% of net assets
AARP GNMA and U.S. Treasury High level of current income, consistent with 0.350% to $2 billion $4,583,980,460
Fund greater share price stability than other GNMA 0.330% next $2 billion
mutual funds, through investment primarily in 0.300% next $2 billion
high quality U.S. Government-guaranteed GNMA 0.280% next $2 billion
securities and U.S. Treasury obligations. 0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.120% of net assets
AARP Growth and Income Fund Long term capital growth and income, consistent 0.350% to $2 billion $6,606,012,897
with a share price more stable than other 0.330% next $2 billion
growth and income mutual funds, through 0.300% next $2 billion
investment primarily in common stocks with 0.280% next $2 billion
above-average dividend yields and securities 0.260% next $3 billion
convertible into common stocks. 0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.190% of net assets
</TABLE>
B-13
<PAGE> 78
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
AARP High Quality Short Term High level of current income, consistent with 0.350% to $2 billion $ 454,869,518
Bond Fund greater share price stability than other 0.330% next $2 billion
short-term bond mutual funds, through 0.300% next $2 billion
investment primarily in a portfolio of high 0.280% next $2 billion
quality, short-term securities. 0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.190% of net assets
AARP High Quality Money Fund Current income consistent with maintaining 0.350% to $2 billion $ 471,310,867
stability and safety of principal and a 0.330% next $2 billion
constant net asset value of $1.00 per share 0.300% next $2 billion
while offering liquidity, through investment in 0.280% next $2 billion
high quality securities. 0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.100% of net assets
AARP High Quality Tax Free Current income free from federal income taxes 0.350% to $2 billion $ 102,613,893
Money Fund consistent with maintaining stability and 0.330% next $2 billion
safety of principal and a constant net asset 0.300% next $2 billion
value of $1.00 per share while offering 0.280% next $2 billion
liquidity, through investment in high-quality 0.260% next $3 billion
municipal securities. 0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.100% of net assets
</TABLE>
B-14
<PAGE> 79
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
AARP Insured Tax Free General High level of current income free from federal 0.350% to $2 billion $1,712,008,168
Bond Fund income taxes, consistent with greater share 0.330% next $2 billion
price stability than other insured tax-free 0.300% next $2 billion
general bond mutual funds, through investment 0.280% next $2 billion
primarily in high quality municipal securities 0.260% next $3 billion
covered by insurance. 0.250% next $3 billion
0.240% thereafter
INDIVIDUAL FUND FEE
0.190% of net assets
AARP International Growth and Long term capital growth, consistent with a 0.350% to $2 billion $ 20,259,062
Income Fund share price more stable than other 0.330% next $2 billion
international mutual funds, through investment 0.300% next $2 billion
primarily in a diversified portfolio of foreign 0.280% next $2 billion
common stocks with above-average dividend 0.260% next $3 billion
yields and foreign securities convertible into 0.250% next $3 billion
common stocks. 0.240% thereafter++
INDIVIDUAL FUND FEE
0.600% of net assets
AARP Small Company Stock Fund Long term growth of capital, consistent with a 0.350% to $2 billion $ 50,271,473
share price more stable than other small 0.330% next $2 billion
company stock mutual funds, through investment 0.300% next $2 billion
primarily in common stocks of small U.S. 0.280% next $2 billion
companies. 0.260% next $3 billion
0.250% next $3 billion
0.240% thereafter++
INDIVIDUAL FUND FEE
0.550% of net assets
</TABLE>
B-15
<PAGE> 80
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
AARP U.S. Stock Index Fund Long term capital growth and income, consistent 0.350% to $2 billion $ 38,085,073
with greater share price stability than an S&P 0.330% next $2 billion
500 Index mutual fund, by taking an indexing 0.300% next $2 billion
approach to investing in common stocks, 0.280% next $2 billion
emphasizing higher dividend stocks while 0.260% next $3 billion
maintaining investment characteristics 0.250% next $3 billion
otherwise similar to the S&P 500 Index. 0.240% thereafter++
INDIVIDUAL FUND FEE
0.000% of net assets
</TABLE>
- ------------------------------
+ The information provided below is shown as of the end of each Fund's last
fiscal year, unless otherwise noted.
++ Subject to waivers and/or expense limitations.
* The addition of this breakpoint is effective October 1, 1998.
** Fee information is not available for Scudder Dividend & Growth Fund, which
commenced operations on June 1, 1998; Scudder Tax Managed Growth Fund and
Scudder Tax Managed Small Company Fund, each of which commenced operations
on July 31, 1998; Scudder Corporate Bond Fund, which commenced operations on
August 31, 1998; or Scudder International Growth Fund and Scudder
International Value Fund, each of which commenced operations on September 1,
1998.
*** The addition of this breakpoint is expected to be effective October 1,
1998.
@ Net asset information is provided for the semi-annual period ended May 31,
1998.
B-16
<PAGE> 81
KEMPER FUNDS+
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
INCOME FUNDS
Kemper Adjustable Rate High current income consistent with low volatility 0.550% to $250 million $ 81,967,000
U.S. Government Fund of principal. 0.520% next $750 million
0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
Kemper High current income and preservation of capital, 0.550% to $250 million $ 171,400,000
Short-Intermediate with equal emphasis, from a portfolio primarily 0.520% next $750 million
Government Fund consisting of short-and intermediate-term U.S. 0.500% next $1.5 billion
Government securities. 0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
TAX-FREE INCOME FUNDS
Kemper Michigan Tax- High level of current income exempt from federal and 0.550% to $250 million $ 3,091,000
Free Income Fund Michigan income taxes through a non-diversified 0.520% next $750 million
portfolio of municipal securities. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter**
</TABLE>
B-17
<PAGE> 82
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Kemper New Jersey Tax- High level of current income exempt from federal and 0.550% to $250 million $ 5,304,000
Free Income Fund New Jersey income taxes through a professionally 0.520% next $750 million
managed non-diversified portfolio of municipal 0.500% next $1.5 billion
securities. 0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter**
Kemper Pennsylvania Tax- High level of current income exempt from federal and 0.550% to $250 million $ 6,304,000
Free Income Fund state of Pennsylvania income taxes through a 0.520% next $750 million
professionally managed non-diversified portfolio of 0.500% next $1.5 billion
municipal securities. 0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter**
Kemper Texas Tax-Free A high level of current interest income exempt from 0.550% to $250 million $ 12,469,000
Income Fund federal income taxes through a professionally 0.520% next $750 million
managed non-diversified portfolio of municipal 0.500% next $1.5 billion
securities. 0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% thereafter
CLOSED-END FUNDS
The Growth Fund of Long-term capital appreciation by investing 1.000% of net assets(2) $ 315,059,000
Spain, Inc. primarily in equity securities of Spanish companies.
Kemper High Income Trust Highest current income obtainable consistent with 0.850% of net assets(2) $ 222,919,000
reasonable risk with capital gains secondary.
</TABLE>
B-18
<PAGE> 83
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Kemper Intermediate High current income consistent with preservation of 0.800% of net assets(2) $ 267,218,000
Government Trust capital by investing in U.S. and foreign government
securities.
Kemper Multi-Market High current income consistent with prudent total 0.850% of net assets(2) $ 217,508,000
Income Trust return asset management by investing in a
diversified portfolio of investment grade tax-exempt
securities.
Kemper Municipal Income High level of current income exempt from federal 0.550% of net assets(2) $ 686,179,000
Trust income tax.
Kemper Strategic Income High current income by investing its assets in a 0.850% of net assets(2) $ 53,129,000
Fund combination of lower-rated corporate fixed-income
securities, fixed-income securities of emerging
market and other foreign issuers and, fixed-income
securities of the U.S. Government and its agencies
and instrumentalities and private mortgage-backed
issuers.
Kemper Strategic High level of current income exempt from federal 0.600% of net assets(2) $ 130,895,000
Municipal Income Trust income tax by investing in a diversified portfolio
of tax-exempt municipal securities.
ANNUITY PRODUCTS
Kemper Blue Chip Growth of capital and income. 0.650% of net assets $ 18,421,000
Portfolio
Kemper Contrarian Value High rate of return. 0.750% of net assets $ 162,380,000
Portfolio
Kemper Global Blue Chip Long-term growth of capital through diversified 1.000% to $250 million N/A*
Portfolio worldwide portfolio of marketable securities, 0.950% next $750 million
primarily equity securities. 0.900% thereafter
Kemper Global Income High current income consistent with prudent total 0.750% of net assets $ 2,145,000
Portfolio return asset management.
</TABLE>
B-19
<PAGE> 84
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Kemper Government High current income consistent with preservation of 0.550% of net assets $ 86,682,000
Securities Portfolio capital from a portfolio consisting primarily of
U.S. Government securities.
Kemper Growth Portfolio Maximum appreciation of capital. 0.600% of net assets $ 563,016,000
Kemper High Yield High level of current income by investing in fixed 0.600% of net assets $ 391,664,000
Portfolio income securities.
Kemper Horizon 10+ A balance between growth of capital and income 0.600% of net assets $ 22,553,000
Portfolio consistent with moderate risk.
Kemper Horizon 20+ Growth of capital and, secondarily, income. 0.600% of net assets $ 16,659,000
Portfolio
Kemper Horizon 5 Income consistent with preservation of capital, and 0.600% of net assets $ 14,258,000
Portfolio secondarily, growth.
Kemper International Long-term growth of capital and current income, 1.000% of net assets N/A*
Growth and Income primarily from foreign equity securities.
Portfolio
Kemper International Total return, a combination of capital growth and 0.750% of net assets $ 200,046,000
Portfolio income, principally through an internationally
diversified portfolio of equity securities.
Kemper Investment Grade High current income by investing primarily in a 0.600% of net assets $ 15,504,000
Bond Portfolio diversified portfolio of investment grade debt
securities.
Kemper Money Market Maximum current income to the extent consistent with 0.500% of net assets $ 100,143,000
Portfolio stability of principal from a portfolio of high
quality money market instruments.
Kemper Small Cap Growth Maximum capital appreciation from a portfolio 0.650% of net assets $ 137,415,000
Portfolio primarily consisting of growth stocks of small
companies.
Kemper Small Cap Value Long-term capital appreciation from a portfolio 0.750% of net assets $ 76,108,000
Portfolio primarily of value stocks of smaller companies.
Kemper Total Return High total return through a combination of income 0.550% of net assets $ 786,996,000
Portfolio and capital appreciation.
</TABLE>
B-20
<PAGE> 85
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Kemper Value+Growth Growth of capital through professional management of 0.750% of net assets $ 69,094,000
Portfolio a portfolio of growth and value stocks.
Kemper-Dreman Financial Long-term capital appreciation by investing 0.750% to $250 million N/A*
Services Portfolio primarily in common stocks and other equity 0.720% next $750 million
securities of companies in the financial services 0.700% next $1.5 billion
industry believed by the investment manger to be 0.680% next $2.5 billion
undervalued. 0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
Kemper-Dreman High High rate of total return. 0.750% to $250 million N/A*
Return Equity 0.720% next $750 million
Portfolio 0.700% next $1.5 billion
0.680% next $2.5 billion
0.650% next $2.5 billion
0.640% next $2.5 billion
0.630% next $2.5 billion
0.620% thereafter
MONEY MARKET FUNDS
Government Securities Maximum current income to the extent consistent with 0.220% to $500 million $ 810,001,000
Portfolio (Cash stability of capital from a portfolio of U.S. 0.200% next $500 million
Account Trust) Government obligations. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(1)**
Government Securities Maximum current income to the extent consistent with 0.220% to $500 million $ 391,861,000
Portfolio (Cash stability of capital from a portfolio of U.S. 0.200% next $500 million
Equivalent Fund) Government obligations. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(4)
</TABLE>
B-21
<PAGE> 86
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Government Securities Maximum current income to the extent consistent with 0.150% of net assets(5)** $ 312,194,000
Portfolio (Investors stability of capital by investing in U.S. Government
Cash Trust) obligations and repurchase agreements.
Investors Florida Maximum current income exempt from federal income 0.220% to $500 million $ 7,611,000
Municipal Cash Fund taxes to the extent consistent with stability of 0.200% next $500 million
capital. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(3)**
Investors Michigan Maximum current income exempt from federal and 0.22% to $500 million N/A*
Municipal Cash Fund Michigan income taxes to the extent consistent with 0.20% next $500 million
stability of capital 0.175% next $1 billion
0.16% next $1 billion
0.15% thereafter
Investors New Jersey Maximum current income exempt from federal and New 0.220% to $500 million $ 4,665,000
Municipal Cash Fund Jersey income taxes to the extent consistent with 0.200% next $500 million
stability of capital. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(3)**
Investors Pennsylvania Maximum current income exempt from federal and 0.220% to $500 million $ 3,195,000
Municipal Cash Fund Pennsylvania income taxes to the extent consistent 0.200% next $500 million
with stability of capital. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(3)**
Money Market Portfolio Maximum current income to the extent consistent with 0.220% to $500 million $2,004,420,000
(Cash Account Trust) stability of capital from a portfolio primarily of 0.200% next $500 million
commercial paper and bank obligations. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(1)**
</TABLE>
B-22
<PAGE> 87
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Money Market Portfolio Maximum current income to the extent consistent with 0.220% to $500 million $ 851,592,000
(Cash Equivalent Fund) stability of capital from a portfolio primarily of 0.200% next $500 million
commercial paper and bank obligations. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(4)
Tax-Exempt Portfolio Maximum current income exempt from federal income 0.220% to $500 million $ 370,036,000
(Cash Account Trust) taxes to the extent consistent with stability of 0.200% next $500 million
capital from a portfolio of municipal securities. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(1)**
Tax-Exempt Portfolio Maximum current income that is exempt from federal 0.220% to $500 million $ 333,427,000
(Cash Equivalent Fund) income taxes to the extent consistent with stability 0.200% next $500 million
of capital from a portfolio of municipal securities. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter
Treasury Portfolio Maximum current income to the extent consistent with 0.150% of net assets(5)** $ 74,290,000
(Investors Cash Trust) stability of capital by investing in U.S. Government
obligations and repurchase agreements.
Zurich Government Money Maximum current income to the extent consistent with 0.500% to $215 million $ 686,871,000
Fund stability of principal from a portfolio of U.S. 0.375% next $335 million
Government obligations. 0.300% next $250 million
0.250% thereafter(6)
Zurich Money Market Fund Maximum current income to the extent consistent with 0.500% to $215 million $4,538,627,000
stability of principal from a portfolio primarily 0.375% next $335 million
consisting of commercial paper and bank obligations. 0.300% next $250 million
0.250% thereafter(6)
</TABLE>
B-23
<PAGE> 88
<TABLE>
<CAPTION>
FUND OBJECTIVE FEE RATE ASSETS
---- --------- -------- ------
<S> <C> <C> <C>
Zurich Tax-Free Money Maximum current income to the extent consistent with 0.500% to $215 million $ 815,894,000
Fund stability of principal from a portfolio of municipal 0.375% next $335 million
securities. 0.300% next $250 million
0.250% thereafter(6)
Zurich YieldWise Money Maximum current income to the extent consistent with 0.500% to $215 million $1,071,728,000
Fund stability of principal by investing in high-quality 0.375% next $335 million
short-term money market instruments 0.300% next $250 million
0.250% thereafter**
Tax-Exempt New York Maximum current income exempt from federal, New York 0.220% to $500 million $ 104,198,000
Money Market Fund State and New York City income taxes to the extent 0.200% next $500 million
consistent with stability of capital. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter(3)**
Tax-Exempt California Maximum current income exempt from federal and 0.220% to $500 million $ 117,432,000
Money Market Fund California income taxes to the extent consistent 0.200% next $500 million
with stability of capital. 0.175% next $1 billion
0.160% next $1 billion
0.150% thereafter
</TABLE>
- ------------------------------
+ The information provided below is shown as of the end of each Fund's last
fiscal year, unless otherwise noted.
* Fee information is not available for Investors Michigan Municipal Cash Fund,
which commenced operations on April 6, 1998; Kemper-Dreman High Return
Equity Portfolio, which commenced operations on May 1, 1998; Kemper-Dreman
Financial Services Portfolio, which commenced operations on May 4, 1998; or
Kemper Global Blue Chip Portfolio and Kemper International Growth and Income
Portfolio, each of which commenced operations on May 5, 1998.
** Subject to waivers and/or reimbursements.
(1) Payable in the aggregate for each of the Government Securities Portfolio,
Money Market Portfolio and Tax-Exempt Portfolio series of Cash Account
Trust.
(2) Based on average weekly net assets.
B-24
<PAGE> 89
(3) Payable in the aggregate for each of the Investors Florida Municipal Cash
Fund, Investors New Jersey Municipal Cash Fund, Investors Pennsylvania
Municipal Cash Fund and Tax-Exempt New York Money Market Fund series of
Investors Municipal Cash Fund.
(4) Payable in the aggregate for each of the Government Securities Portfolio
and Money Market Portfolio series of Cash Equivalent Fund.
(5) Payable in the aggregate for each of the Government Securities Portfolio
and Treasury Portfolio series of Investors Cash Trust.
(6) Payable in the aggregate for each of the Zurich Government Money Fund,
Zurich Money Market Fund and Zurich Tax-Free Money Fund series of Zurich
Money Funds.
B-25
<PAGE> 90
EXHIBIT C
PROPOSED REVISION TO CERTAIN FUNDAMENTAL
POLICIES OF THE BLUE CHIP FUND
The 1940 Act requires an investment company to adopt policies governing certain
specified activities, which can be changed only by a shareholder vote. Policies
that cannot be changed or eliminated without a shareholder vote are referred to
herein as "fundamental" policies. The purposes of the proposal to revise certain
of the Blue Chip Fund's investment policies (the "Proposal") are to eliminate
the requirement of shareholder approval to change policies except where required
by the 1940 Act and to provide the maximum permitted flexibility in those
policies that do require shareholder approval. Management has advised the Board
that some of the Blue Chip Fund's fundamental policies that are not required to
be such under the 1940 Act were adopted in the past as a result of now rescinded
regulatory requirements and no longer serve any useful purpose. Management
believes that other fundamental policies, as well as the classification of the
Blue Chip Fund's investment objective(s) as fundamental, are unnecessary because
the provisions of the 1940 Act or federal tax law, together with the disclosure
requirements of the Federal securities laws, provide adequate safeguards for the
Blue Chip Fund and its shareholders. The Proposal is described in detail below.
This Proposal is sub-divided into the following three sections:
(A) ELIMINATION OF SHAREHOLDER APPROVAL REQUIREMENT TO AMEND INVESTMENT
OBJECTIVES AND INVESTMENT POLICIES. The Blue Chip Fund currently requires
shareholder approval to amend "investment objectives and policies." The
first section of this Proposal seeks shareholder approval of the elimination
of the shareholder vote requirement for amending (a) "investment
objectives," and (b) "investment policies" which are not otherwise
specifically identified as fundamental. Eliminating the shareholder vote
requirement for amending the investment objective (or objectives) of the
Blue Chip Fund is intended to enhance the Blue Chip Fund's investment
flexibility in the event of changing circumstances. Additionally, management
believes that currently it is not possible to determine precisely which
policies are fundamental on the basis of the language in the Blue Chip
Fund's Prospectus and Statement of Additional Information, thus creating
uncertainty and restricting the Blue Chip Fund's investment flexibility and
its ability to respond to changing regulatory and industry conditions.
(B) REVISION OF FUNDAMENTAL POLICIES MANDATED BY THE 1940 ACT. Each of the
fundamental policies proposed for revision relates to an activity that the
1940 Act requires be governed by a fundamental policy.
C-1
<PAGE> 91
Each proposed revision is, in general, intended to provided the Blue Chip
Fund's Board with the maximum flexibility permitted under the 1940 Act, and
to promote simplicity among the Blue Chip Fund's policies.
(C) ELIMINATION OF SHAREHOLDER APPROVAL TO CHANGE OTHER FUNDAMENTAL
POLICIES. This Proposal seeks to eliminate certain policies that are
specifically designated as fundamental but which are not required to be
fundamental under the 1940 Act. The Board of the Blue Chip Fund anticipates
adopting certain of these policies as non-fundamental. Any policy that is
not designated as fundamental can be modified or eliminated by the Board,
and, as indicated below, management intends to recommend to the Board the
elimination of several of them as being inappropriate or unnecessary under
current conditions.
Each proposed policy is identified in bold-type below.
The Blue Chip Fund's current fundamental policies are set forth in its
Prospectus and Statement of Additional Information. Changes in fundamental
policies that are approved by shareholders, as well as changes in
non-fundamental policies that are adopted by the Board, will be reflected in the
Blue Chip Fund's Prospectus and other disclosure documents. Any change in the
method of operation of the Blue Chip Fund will require prior Board approval.
Except as specifically indicated below, the Board of the Blue Chip Fund does not
presently intend to change the investment objectives or the investment policies
of the Fund.
Approval of each item of this Proposal with respect to the Blue Chip Fund
requires the affirmative vote of a majority of the outstanding voting
securities, as defined in the 1940 Act, of the Blue Chip Fund. If the
shareholders of the Blue Chip Fund fail to approve the proposed modification or
elimination of policies or the elimination of the shareholder approval
requirement as to a matter, the current such policy or voting requirement will
remain in effect.
A. ELIMINATION OF SHAREHOLDER APPROVAL REQUIREMENT TO AMEND INVESTMENT
OBJECTIVES AND OPERATING POLICIES
INVESTMENT OBJECTIVES
PROPOSAL 3.0:
IF THIS PROPOSAL IS APPROVED BY THE SHAREHOLDERS OF THE BLUE CHIP FUND, THE
INVESTMENT OBJECTIVE(S) OF THE BLUE CHIP FUND WILL NOT BE CLASSIFIED AS
FUNDAMENTAL.
Management believes that leaving the power to modify investment objectives up to
the discretion of the Board would strengthen the Blue
C-2
<PAGE> 92
Chip Fund's ability to respond to changing circumstances. The Board of the Blue
Chip Fund does not presently intend to modify any investment objective, and
would disclose any such changes to applicable shareholders by amending the Blue
Chip Fund's Prospectus and Statement of Additional Information.
INVESTMENT POLICIES
PROPOSAL 3.1:
IF THIS PROPOSAL IS APPROVED BY THE SHAREHOLDERS OF THE BLUE CHIP FUND, THE
"INVESTMENT POLICIES" OF THE BLUE CHIP FUND WILL NOT BE CLASSIFIED AS
FUNDAMENTAL EXCEPT AS OTHERWISE PROVIDED IN THIS PROPOSAL.
This proposal is intended to provide the Blue Chip Fund with clarity of
disclosure and the investment flexibility necessary to respond to changing
circumstances by eliminating the shareholder vote requirement for amending
"investment policies" which are not specifically identified as fundamental. The
Blue Chip Fund's Prospectus currently contains a statement that characterizes
all "investment policies" of the Blue Chip Fund as fundamental. Management
believes that this current statement is overbroad. The current statement also
unnecessarily restricts the Blue Chip Fund's flexibility and may make it more
difficult to respond to changing conditions. Management believes that removing
the fundamental characterization of all policies not otherwise specifically
identified as fundamental is consistent with industry standards and would allow
the Board of the Blue Chip Fund to modify operating policies in light of changes
in the investment management industry, market conditions and the regulatory
environment, but only consistent with applicable law, the Blue Chip Fund's
investment objective and its clearly-identified fundamental policies.
B. REVISION OF FUNDAMENTAL POLICIES
DIVERSIFICATION
PROPOSAL 3.2:
IF THIS PROPOSAL IS APPROVED BY THE SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND WILL REMAIN A "DIVERSIFIED" FUND UNDER THE 1940 ACT, BUT WILL NOT BE
SUBJECT TO ADDITIONAL REQUIREMENTS THAT ARE MORE RESTRICTIVE THAN THE 1940 ACT.
The Blue Chip Fund is currently classified as a diversified open-end investment
company. Under the 1940 Act, the Blue Chip Fund is "diversified" if with respect
to 75% of the value of its total assets, it may not invest more than 5% of the
value of its total assets in securities issued by any one issuer or purchase
more than 10% of the outstanding voting securities of any one issuer, except in
each case in U.S. Government
C-3
<PAGE> 93
securities or securities issued by other investment companies. Currently the
Blue Chip Fund also has adopted additional diversification policies. The Blue
Chip Fund's policy includes an exception for U.S. Government securities and the
policy for the Blue Chip Fund also includes an exception for investments in a
master fund within a master/feeder fund structure.
Under the Blue Chip Fund's current diversification policy, the Blue Chip Fund
may not invest more than 5% of its total assets in the securities of any one
issuer. The Blue Chip Fund's policies also contain a separate restriction
prohibiting the purchase of more than 10% of the voting securities of any one
issuer. Accordingly, the elimination of the separate diversification policies
for the Blue Chip Fund means that the Blue Chip Fund must comply with only the
1940 Act diversification requirements. As a result, the elimination of the
separate diversification policies that apply to 75% of the value of the Blue
Chip Fund's total assets will not represent a substantive change to the Blue
Chip Fund's diversification requirements. However, the elimination of the
separate diversification policies that apply to 100% of the value of the Blue
Chip Fund's total assets will cause the Blue Chip Fund to have less restrictive
diversification requirements.
BORROWING
PROPOSAL 3.3:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT BORROW MONEY, EXCEPT AS PERMITTED UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED, AND AS INTERPRETED OR MODIFIED BY REGULATORY AUTHORITY
HAVING JURISDICTION, FROM TIME TO TIME.
The current policy of the Blue Chip Fund prohibits borrowing money, except as a
temporary measure for extraordinary or emergency purposes, in which case the
Blue Chip Fund may borrow up to one-third of the value of its total assets.
Additionally, the Blue Chip Fund is restricted from borrowing for leverage or
from making investments while borrowings are outstanding.
The proposed policy would permit the Blue Chip Fund to engage in borrowing in a
manner and to the full extent permitted by applicable law. The 1940 Act requires
borrowing to have 300% asset coverage, which means, in effect, that a fund would
be permitted to borrow up to an amount equal to 50% of its total assets under
the proposed borrowing policy. Additionally, under the proposed policy, the Blue
Chip Fund would not be limited to borrowing for temporary or emergency purposes,
could borrow for leverage, and could purchase securities for investment while
borrowings are outstanding. However, the Board has no current intention of
authorizing any of these practices. If the Board
C-4
<PAGE> 94
authorized the Blue Chip Fund to borrow for leverage, such borrowing would
increase the Blue Chip Fund's volatility and the risk of loss in a declining
market.
SENIOR SECURITIES
PROPOSAL 3.4:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT ISSUE SENIOR SECURITIES, EXCEPT AS PERMITTED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND AS INTERPRETED OR MODIFIED BY
REGULATORY AUTHORITY HAVING JURISDICTION, FROM TIME TO TIME.
The current policy of the Blue Chip Fund prohibits the issuance of senior
securities (i.e., securities which are obligations or instruments evidencing
indebtedness) except as permitted under the 1940 Act. The proposed policy
re-words the current policy without making any material changes.
CONCENTRATION
PROPOSAL 3.5:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT CONCENTRATE ITS INVESTMENTS IN A PARTICULAR INDUSTRY, AS THAT
TERM IS USED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND AS
INTERPRETED OR MODIFIED BY REGULATORY AUTHORITY HAVING JURISDICTION, FROM TIME
TO TIME.
While the 1940 Act does not define what constitutes "concentration" in an
industry, the staff of the Commission takes the position that investment of more
than 25% of a fund's assets in an industry constitutes concentration. If a fund
concentrates in an industry, it must at all times have more than 25% of its
assets invested in that industry, and if its policy is not to concentrate, as is
the case with the Blue Chip Fund, it may not invest more than 25% of its assets
in the applicable industry, unless, , in either case, the fund discloses the
specific conditions under which it will change from concentrating to not
concentrating or vice versa.
The Blue Chip Fund's current policy in effect prohibits the purchase of
securities if it would result in more than 25% of the Blue Chip Fund's total
assets being invested in the same industry. For the Blue Chip Fund, there are
exceptions for U.S. Government securities, state securities, and/or for
investment in a master fund within a master/feeder fund structure. In some
cases, what constitutes an industry for the purposes of this restriction is
included in the policy itself. The Blue Chip Fund is permitted to adopt
reasonable definitions of what constitutes an industry, or it may use standard
classifications promulgated by the
C-5
<PAGE> 95
Commission, or some combination thereof. Because a fund may create its own
reasonable industry classifications, management believes that it is not
necessary to include such matters in the fundamental policy of the Blue Chip
Fund.
UNDERWRITING OF SECURITIES
PROPOSAL 3.6:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT ENGAGE IN THE BUSINESS OF UNDERWRITING SECURITIES ISSUED BY
OTHERS, EXCEPT TO THE EXTENT THAT THE BLUE CHIP FUND MAY BE DEEMED TO BE AN
UNDERWRITER IN CONNECTION WITH THE DISPOSITION OF PORTFOLIO SECURITIES.
The proposed underwriting policy has been re-worded without making any material
changes.
INVESTMENT IN REAL ESTATE
PROPOSAL 3.7:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT PURCHASE OR SELL REAL ESTATE, WHICH TERM DOES NOT INCLUDE
SECURITIES OF COMPANIES WHICH DEAL IN REAL ESTATE OR MORTGAGES OR INVESTMENTS
SECURED BY REAL ESTATE OR INTERESTS THEREIN, EXCEPT THAT THE BLUE CHIP FUND
RESERVES FREEDOM OF ACTION TO HOLD AND TO SELL REAL ESTATE ACQUIRED AS A RESULT
OF THE BLUE CHIP FUND'S OWNERSHIP OF SECURITIES.
The proposed real estate policy re-words the current policies without making any
material changes. The policies of the Blue Chip Fund currently also prohibit
investment in real estate limited partnerships. Management intends to recommend
to the Board of the Blue Chip Fund to adopt the foregoing policy as a
non-fundamental policy.
PURCHASE OF COMMODITIES
PROPOSAL 3.8:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT PURCHASE PHYSICAL COMMODITIES OR CONTRACTS RELATING TO
PHYSICAL COMMODITIES.
The Blue Chip Fund's current policies prohibit the purchase or sale of
commodities or commodity contracts. These policies may contain exceptions for
financial futures contracts and options on such contracts and foreign currency
transactions. Under the proposed policy, the Blue Chip Fund would be prohibited
from purchasing only physical commodities or contracts relating to physical
commodities.
C-6
<PAGE> 96
LENDING
PROPOSAL 3.9:
IF THIS PROPOSAL IS APPROVED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE
CHIP FUND MAY NOT MAKE LOANS EXCEPT AS PERMITTED UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED, AND AS INTERPRETED OR MODIFIED BY REGULATORY AUTHORITY
HAVING JURISDICTION FROM TIME TO TIME.
The Blue Chip Fund's current lending policy prohibits making loans to others.
There may be no exceptions to this restriction or there may be exceptions for
loans of portfolio securities and to the extent the entry into repurchase
agreements, the purchase of debt securities or interests in indebtedness and/or
the making of time or demand deposits with banks in accordance with the Blue
Chip Fund's investment objectives and policies are deemed to be loans. The
proposed policy, unlike the current policy, does not specify the particular
types of lending in which the Blue Chip Fund is permitted to engage; instead,
the proposed policy permits the Blue Chip Fund to lend in a manner and to an
extent permitted by applicable law. The proposed change would, therefore, permit
the Blue Chip Fund, subject to the receipt of any necessary regulatory approval
and Board authorization, to enter into lending arrangements, including lending
agreements under which the funds advised by Scudder Kemper could for temporary
purposes lend money directly to and borrow money directly from each other
through a credit facility. The Blue Chip Fund believes that the flexibility
provided by this policy change could possibly reduce the Blue Chip Fund's
borrowing costs and enhance its ability to earn higher rates of interest on
short-term lendings in the event that the Board determines that such
arrangements are warranted in light of the Blue Chip Fund's particular
circumstances.
C. ELIMINATION OF SHAREHOLDER APPROVAL TO CHANGE INVESTMENT OBJECTIVES AND OTHER
IDENTIFIED POLICIES
Certain of the policies listed below (Margin Purchases and Short Sales, Pledging
of Assets and Purchases of Voting Securities) were initially adopted by the Blue
Chip Fund due to state securities law requirements that are no longer in effect.
Except as otherwise stated, if shareholders approve the elimination of these
policies as fundamental, management will recommend to the Boards that they
eliminate these policies entirely as being unnecessary.
C-7
<PAGE> 97
MARGIN PURCHASES AND SHORT SALES
PROPOSAL 3.10:
IF THIS PROPOSAL IS ADOPTED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE CHIP
FUND WILL NOT HAVE A FUNDAMENTAL RESTRICTION ON MARGIN PURCHASES AND SHORT
SALES.
The Blue Chip Fund is currently prohibited from making margin purchases and
short sales, except to obtain short-term credits necessary for clearance of
transactions, and in the case of margin deposits, in connection with financial
futures and options transactions. If elimination of this restriction is approved
by shareholders, the Blue Chip Fund's potential use of margin transactions
beyond transactions in futures and options and for the clearance of purchases
and sales of securities, including the use of margin in ordinary securities
transactions, would be generally limited by the current position taken by the
staff of the SEC that margin transactions with respect to securities are
prohibited under Section 18 of the 1940 Act because they create senior
securities. "Margin transactions" involve the purchase of securities with money
borrowed from a broker, with cash or eligible securities being used as
collateral against the loan. The Blue Chip Fund's ability to engage in margin
transactions is also limited by its borrowing policies, which permit the Blue
Chip Fund to borrow money only as permitted by applicable law.
PLEDGING OF ASSETS
PROPOSAL 3.11:
IF THIS PROPOSAL IS ADOPTED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE CHIP
FUND WILL NOT HAVE A FUNDAMENTAL RESTRICTION ON PLEDGING OF ASSETS.
The Blue Chip Fund is currently prohibited from pledging, mortgaging or
hypothecating assets, except in order to secure borrowings. The Blue Chip Fund
may pledge securities having a market value not exceeding 7 1/2%, 10%, 15% or up
to the amount of the borrowing of the value of the Blue Chip Fund's assets and,
in certain cases, except in connection with writing covered call options and the
purchase or sale of futures contracts and options on future contracts.
PURCHASES OF VOTING SECURITIES
PROPOSAL 3.12:
IF THIS PROPOSAL IS ADOPTED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE CHIP
FUND WILL NOT HAVE A FUNDAMENTAL RESTRICTION ON PURCHASE OF SECURITIES.
C-8
<PAGE> 98
The Blue Chip Fund is prohibited with respect to 100% of its assets from
purchasing more than 10% of the securities of a single issuer. Additionally, the
Blue Chip Fund is a "diversified" fund and is therefore limited to purchasing,
with respect to 75% of its assets, not more than 10% of the voting securities of
a single issuer.
PURCHASES OF OPTIONS AND WARRANTS
PROPOSAL 3.13:
IF THIS PROPOSAL IS ADOPTED BY SHAREHOLDERS OF THE BLUE CHIP FUND, THE BLUE CHIP
FUND WILL NOT HAVE A FUNDAMENTAL RESTRICTION ON PURCHASES OF OPTIONS AND
WARRANTS.
The Blue Chip Fund is currently prohibited from writing, purchasing or selling
options. The Blue Chip Fund is prohibited from writing, purchasing or selling
options on more than 25% of the Blue Chip Fund's net assets and is restricted
from investing more than 5% of the Blue Chip Fund's net assets on premiums on
put and call options. The Blue Chip Fund's policies contain exceptions for
purchases and sales of options on financial contracts.
C-9
<PAGE> 99
EXHIBIT D
FINANCIAL HIGHLIGHTS
BLUE CHIP FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------
1998 1997 1996 1995 1994
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $17.68 17.14 14.87 12.33 13.88
Income from investment
operations:
Net investment income......... .07 .18 .22 .19 .19
Net realized and unrealized
gain (loss)................. 2.75 3.70 3.45 2.57 (.71)
Total from investment
operations.................... 2.82 3.88 3.67 2.76 (.52)
Less dividends:
Distribution from net
investment income........... .09 .21 .20 .20 .19
Distribution from net realized
gain........................ 2.19 3.13 1.20 .02 .84
Total dividends................. 2.28 3.34 1.40 .22 1.03
Net asset value, end of
period........................ $18.22 17.68 17.14 14.87 12.33
------ ----- ----- ----- -----
TOTAL RETURN (NOT ANNUALIZED)... 17.78% 26.78 26.72 22.74 (3.82)
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses........................ 1.20% 1.19 1.26 1.30 1.48
Net investment income........... .73% 1.07 1.40 1.47 1.50
</TABLE>
D-1
<PAGE> 100
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, MAY 31 TO
APRIL 30, ------------------------ OCTOBER 31,
1998 1997 1996 1995 1994
---------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period...................... $17.61 17.09 14.82 12.29 12.30
Income from investment
operations:
Net investment income
(loss)...................... (.02) .04 .10 .09 .06
Net realized and unrealized
gain (loss)............... 2.76 3.67 3.45 2.56 (.01)
Total from investment
operations.................. 2.74 3.71 3.55 2.65 .05
Less dividends:
Distribution from net
investment income......... .01 .06 .08 .10 .06
Distribution from net
realized gain............. 2.19 3.13 1.20 .02 --
Total dividends............... 2.20 3.19 1.28 .12 .06
Net asset value, end of
period...................... $18.15 17.61 17.09 14.82 12.29
------ ----- ----- ----- -----
TOTAL RETURN (NOT
ANNUALIZED)................. 17.30 % 25.62 25.82 21.76 .42
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses...................... 2.08 % 2.06 2.08 2.06 2.43
Net investment income
(loss)...................... (.15)% .20 .58 .71 .33
</TABLE>
D-2
<PAGE> 101
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------
SIX MONTHS MAY 31
ENDED YEAR ENDED OCTOBER 31, TO
APRIL 30, ------------------------ OCTOBER 31,
1998 1997 1996 1995 1994
---------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period....................... $17.69 17.15 14.88 12.32 12.30
Income from investment
operations:
Net investment income
(loss)..................... (.01) .03 .10 .07 .09
Net realized and unrealized
gain (loss)................ 2.78 3.71 3.45 2.62 (.01)
Total from investment
operations................... 2.77 3.74 3.55 2.69 .08
Less dividends:
Distribution from net
investment income.......... .02 .07 .08 .11 .06
Distribution from net
realized gain.............. 2.19 3.13 1.20 .02 --
Total dividends................ 2.21 3.20 1.28 .13 .06
Net asset value, end of
period....................... $18.25 17.69 17.15 14.88 12.32
------ ----- ----- ----- -----
TOTAL RETURN (NOT
ANNUALIZED).................. 17.37 % 25.71 25.75 22.04 .67
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses....................... 2.03 % 2.00 2.05 2.01 2.33
Net investment income (loss)... (.10)% .26 .61 .76 .43
</TABLE>
D-3
<PAGE> 102
<TABLE>
<CAPTION>
CLASS I
---------------------------------------
SIX MONTHS NOVEMBER 22,
ENDED YEAR ENDED 1995 TO
APRIL 30, OCTOBER 31, OCTOBER 31,
1998 1997 1996
---------- ----------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $17.72 17.18 15.30
Income from investment operations:
Net investment income.................... .11 .32 .36
Net realized and unrealized gain......... 2.76 3.58 2.96
Total from investment operations.......... 2.87 3.90 3.32
Less dividends:
Distribution from net investment
income.................................. .14 .23 .24
Distribution from net realized gain...... 2.19 3.13 1.20
Total dividends........................... 2.33 3.36 1.44
Net asset value, end of period............ $18.26 17.72 17.18
------ ----- -----
TOTAL RETURN (NOT ANNUALIZED)............. 18.07% 26.89 21.89
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses.................................. .73% .70 1.31
Net investment income..................... 1.20% 1.56 1.33
</TABLE>
SUPPLEMENTAL DATA FOR ALL CLASSES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------
1998 1997 1996 1995 1994
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net assets at end of
period (in
thousands)............. $601,785 446,891 256,172 168,266 153,172
Portfolio turnover
rate................... 157% 183 166 117 131
</TABLE>
Average commission rates paid per share on stock transactions for the six months
ended April 30, 1998 and the years ended October 31, 1997 and 1996 were $.0585,
$.0593 and $.0560, respectively.
- ---------------
NOTES: Total return does not reflect the effect of any sales charges. Data for
the period ended April 30, 1998 is unaudited.
D-4
<PAGE> 103
QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
SIX MONTHS FEBRUARY 15
ENDED YEAR ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.............................. $13.03 11.12 9.50
Income from investment operations:
Net investment loss................. -- (.03) --
Net realized and unrealized gain.... 1.38 2.13 1.62
Total from investment operations...... 1.38 2.10 1.62
Less distribution from net realized
gain................................ .53 .19 --
Net asset value, end of period........ $13.88 13.03 11.12
------ ----- -----
TOTAL RETURN (NOT ANNUALIZED)......... 11.09% 19.25 17.05
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)(A)
Expenses.............................. 1.48% 1.45 1.48
Net investment loss................... (.21)% (.36) (.16)
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------
SIX MONTHS FEBRUARY 15
ENDED YEAR ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.............................. $12.84 11.04 9.50
Income from investment operations:
Net investment loss................. (.02) (.08) (.04)
Net realized and unrealized gain.... 1.31 2.07 1.58
Total from investment operations...... 1.29 1.99 1.54
Less distribution from net realized
gain................................ .53 .19 --
Net asset value, end of period........ $13.60 12.84 11.04
------ ----- -----
TOTAL RETURN (NOT ANNUALIZED)......... 10.54% 18.37 16.21
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)(A)
Expenses.............................. 2.28% 2.27 2.32
Net investment loss................... (1.01)% (1.18) (1.00)
</TABLE>
D-5
<PAGE> 104
<TABLE>
<CAPTION>
CLASS C
----------------------------------------
SIX MONTHS FEBRUARY 15
ENDED YEAR ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $12.86 11.05 9.50
Income from investment operations:
Net investment income (loss)..... (.03) (.11) (.04)
Net realized and unrealized
gain........................... 1.33 2.11 1.59
Total from investment operations... 1.30 2.00 1.55
Less distribution from net realized
gain............................. .53 .19 --
Net asset value, end of period..... $13.63 12.86 11.05
------ ----- -----
TOTAL RETURN (NOT ANNUALIZED)...... 10.60 % 18.45 16.32
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)(A)
Expenses........................... 2.14 % 2.16 2.33
Net investment income (loss)....... (.87)% (1.07) (1.01)
</TABLE>
<TABLE>
<CAPTION>
CLASS I
----------------------------------------
SIX MONTHS SEPTEMBER 9
ENDED YEAR ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $13.08 11.14 9.67
Income from investment operations:
Net investment income (loss)..... .01 (.01) --
Net realized and unrealized
gain........................... 1.38 2.14 1.47
Total from investment operations... 1.39 2.13 1.47
Less distribution from net realized
gain............................. .53 .19 --
Net asset value, end of period..... $13.94 13.08 11.14
------ ----- -----
TOTAL RETURN (NOT ANNUALIZED)...... 11.13% 19.48 15.20
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)(A)
Expenses........................... 1.12% 1.26 1.08
Net investment income (loss)....... .15% (.17) (.05)
</TABLE>
SUPPLEMENTAL DATA FOR ALL CLASSES
<TABLE>
<CAPTION>
SIX MONTHS FEBRUARY 15
ENDED YEAR ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Net assets at end of period (in
thousands).......................... $15,380 11,217 4,596
Portfolio turnover rate
(annualized)........................ 68% 84 72
</TABLE>
- ---------------
NOTES: Total return does not reflect the effect of any sales charges. Data for
the period ended May 31, 1998 is unaudited.
D-6
<PAGE> 105
(a) The investment manager agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund for the period ended November
30, 1996. Absent this waiver, the ratios of expenses to average net assets
would have increased and the ratios of net investment income to average net
assets would have decreased for the period ended November 30, 1996 by the
following amounts: for Class A, 0.78%, for Class B, 0.83%, for Class C,
0.79% and for Class I, 1.15%.
D-7
<PAGE> 106
Thank you
Thank you
for mailing your proxy card promptly!
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE APPRECIATE YOUR
CONTINUING SUPPORT AND
LOOK FORWARD TO SERVING
YOUR FUTURE INVESTMENT NEEDS.
<PAGE> 107
KEMPER FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEMPER FUNDS
c Kemper Quantitative Equity Fund
Quantitative
(LOGO)Printed on recycled paper.
<PAGE> 108
KEMPER BLUE CHIP FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
KEMPER QUANTITATIVE EQUITY FUND
DATED: NOVEMBER 20, 1998
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides information about the Kemper
Blue Chip Fund (the "Blue Chip Fund" or a "Fund"), an open-end management
investment company organized as a Massachusetts business trust (a "Trust"), in
addition to information contained in the Prospectus of the Blue Chip Fund, dated
November 20, 1998, which also serves as the Proxy Statement of the Kemper
Quantitative Equity Fund (the "Quantitative Equity Fund" or a "Fund"), an
open-end investment company organized as a Massachusetts business trust (also a
"Trust"), in connection with the issuance of Class A, B, C and I shares of the
Blue Chip Fund to shareholders of the Quantitative Equity Fund. This Statement
of Additional Information is not a prospectus. It should be read in conjunction
with the Prospectus/Proxy Statement, into which it has been incorporated by
reference and which may be obtained by contacting the Funds located at 222 South
Riverside Plaza, Chicago, Illinois 60606 (telephone No. (800) 621-1048 or (800)
414-7447).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposed Reorganization of the Quantitative Equity Fund..... S-1
Additional Information About the Blue Chip Fund............. S-1
Additional Information About the Quantitative Equity Fund... S-2
Financial Statements........................................ S-2
Agreement and Plan of Reorganization........................ Exhibit A
Statement of Additional Information for the Blue Chip Fund
and the Quantitative Equity Fund.......................... Exhibit B
Financial Statements for the Blue Chip Fund................. Exhibit C
Financial Statements for the Quantitative Equity Fund....... Exhibit D
</TABLE>
The Funds will provide, without charge, upon the written or oral request of any
person to whom this Statement of Additional Information is delivered, a copy of
any and all documents that have been incorporated by reference in the
registration statement of which this Statement of Additional Information is a
part.
PROPOSED REORGANIZATION OF THE QUANTITATIVE EQUITY FUND
The shareholders of the Quantitative Equity Fund are being asked to approve an
Agreement and Plan of Reorganization by and between the Blue Chip Fund and the
Quantitative Equity Fund (the "Agreement") pursuant to which the Quantitative
Equity Fund would (i) transfer all of its assets to the Blue Chip Fund in
exchange for Class A, B, C and I shares of beneficial interest of the Blue Chip
Fund and the Blue Chip Fund's assumption of the liabilities of the Quantitative
Equity Fund, (ii) distribute such shares of the Blue Chip Fund to the holders of
shares of the Quantitative Equity Fund and (iii) be liquidated, dissolved and
terminated in accordance with the Trust's Declaration of Trust. A copy of the
Agreement is attached hereto as Exhibit A.
ADDITIONAL INFORMATION ABOUT THE BLUE CHIP FUND
Incorporated herein by reference in its entirety is the Statement of Additional
Information of the Blue Chip Fund, dated January 27, 1998, attached as Exhibit B
to this Statement of Additional Information.
S-1
<PAGE> 109
ADDITIONAL INFORMATION ABOUT THE QUANTITATIVE EQUITY FUND
Incorporated herein by reference in its entirety is the Statement of Additional
Information of the Quantitative Equity Fund, dated January 27, 1998, attached as
Exhibit B to this Statement of Additional Information.
FINANCIAL STATEMENTS
Incorporated herein by reference in their entireties are (i) for the Blue Chip
Fund, the unaudited financial statements for the six months ended April 30, 1998
and the audited financial statements for the fiscal year ended October 31, 1997,
attached as Exhibit C hereto; and (ii) for the Quantitative Equity Fund, the
unaudited financial statements for the six months ended May 31, 1998 and the
audited financial statements for the fiscal year ended November 30, 1997,
attached as Exhibit D hereto.
S-2
<PAGE> 110
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
September 18, 1998, by and between the Kemper Blue Chip Fund (the "Acquiring
Fund") an open-end management investment company organized as a business trust
formed under the laws of the Commonwealth of Massachusetts, and the Kemper
Quantitative Equity Fund (the "Acquired Fund"), an open-end management
investment company organized as a business trust formed under the laws of the
Commonwealth of Massachusetts.
WITNESSETH:
WHEREAS, the Board of Trustees of the Acquiring Fund and the Acquired Fund have
determined that entering into this Agreement for the Acquiring Fund to acquire
the assets and liabilities of the Acquired Fund is in the best interests of the
shareholders of each respective fund; and
WHEREAS, the parties intend that this transaction qualify as a reorganization
within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code");
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. PLAN OF TRANSACTION.
a. TRANSFER OF ASSETS. Upon satisfaction of the conditions precedent set forth
in Sections 7 and 8 hereof, the Acquired Fund will convey, transfer and
deliver to the Acquiring Fund at the closing, provided for in Section 2
hereof, all of the existing assets of the Acquired Fund (including accrued
interest to the Closing Date), free and clear of all liens, encumbrances and
claims whatsoever (the assets so transferred collectively being referred to
as the "Assets").
b. CONSIDERATION. In consideration thereof, the Acquiring Fund agrees that on
the Closing Date, defined in Section 2 hereof, the Acquiring Fund will (i)
deliver to the Acquired Fund, a number of full and fractional Class A, Class
B, Class C and Class I shares of beneficial interest of the Acquiring Fund
having an aggregate net asset value in an amount equal to the aggregate value
of the Assets net of any liabilities of the Acquired Fund described in
Section 3e hereof (the "Liabilities") determined pursuant to Section 3a of
this Agreement (collectively, the "Acquiring Fund Shares") and (ii) assume
all of the Acquired Fund's Liabilities. The calculation of full and
fractional Class A, Class B, Class C and Class I shares of beneficial
interest of the Acquiring Fund to be exchanged shall be carried out to no
less than two (2) decimal places. The Acquiring Fund Shares shall consist of
a number of full and fractional Class A, Class B, Class C and Class I shares
of the Acquiring Fund that will permit the Acquired Fund to make the
distribution described below. On the Closing Date, the Acquiring Fund shall
deliver to the Acquired Fund the Acquiring Fund Shares in the amount
determined pursuant to this Section 1b and the Acquired Fund thereafter
shall, in order to effect the distribution of such shares to the Acquired
Fund's shareholders in liquidation of the Acquired Fund and in exchange for
the shareholders' shares of the Acquired Fund, instruct the Acquiring Fund to
register the pro rata interest in the Acquiring Fund Shares (in full and
fractional shares) of each of the holders of record of shares of the Acquired
Fund on a class by class basis in accordance with their holdings of Class A,
Class B, Class C or Class I shares of the Acquired Fund and shall provide as
part of such instruction a complete and updated list of such holders
(including addresses and taxpayer identification numbers), and the Acquiring
Fund agrees promptly to comply with said instruction. The Acquiring Fund
shall have no obligation to inquire as to the validity, propriety or
correctness of such instruction, but shall assume that such instruction is
valid, proper and correct. All Acquiring Fund Shares delivered to the
Acquired Fund in exchange for such Assets shall be delivered at net asset
value without sales load, commission or other similar fee being imposed.
A-1
<PAGE> 111
2. CLOSING OF THE TRANSACTION.
CLOSING DATE. The closing shall be February 5, 1999 or such other date as the
parties may mutually agree (the "Closing Date").
3. PROCEDURE FOR REORGANIZATION.
a. VALUATION. The value of the Assets and Liabilities of the Acquired Fund to be
transferred and assumed, respectively, by the Acquiring Fund shall be
computed as of the Closing Date, in the manner set forth in the most recent
Prospectus and Statement of Additional Information of the Acquiring Fund
(collectively, the "Acquiring Fund Prospectus"), copies of which have been
delivered to the Acquired Fund.
b. DELIVERY OF FUND ASSETS. The Assets shall be delivered to Investors Fiduciary
Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian for the Acquiring Fund (the "Custodian") in the case of Assets
maintained in the United States and to Chase Manhattan Bank, Chase MetroTech
Center, Brooklyn, New York 11245, in the case of Assets maintained outside of
the United States, for the benefit of the Acquiring Fund, duly endorsed in
proper form for transfer in such condition as to constitute a good delivery
thereof, free and clear of all liens, encumbrances and claims whatsoever, in
accordance with the custom of brokers, and shall be accompanied by all
necessary state stock transfer stamps.
c. FAILURE TO DELIVER SECURITIES. If the Acquired Fund is unable to make
delivery pursuant to Section 3b hereof to the Custodian of any of the
Acquired Fund's securities for the reason that any of such securities
purchased by the Acquired Fund have not yet been delivered to it by the
Acquired Fund's broker or brokers, then, in lieu of such delivery, the
Acquired Fund shall deliver to the Custodian, with respect to said
securities, executed copies of an agreement of assignment and due bills
executed on behalf of said broker or brokers, together with such other
documents as may be required by the Acquiring Fund or Custodian, including
brokers' confirmation slips.
d. SHAREHOLDER ACCOUNTS. The Acquiring Fund, in order to assist the Acquired
Fund in the distribution of the Acquiring Fund Shares to the Acquired Fund
shareholders after delivery of the Acquiring Fund Shares to the Acquired
Fund, will establish pursuant to the request of the Acquired Fund an open
account with the Acquiring Fund for each shareholder of the Acquired Fund
and, upon request by the Acquired Fund, shall transfer to such account the
exact number of full and fractional Class A, Class B, Class C and Class I
shares of the Acquiring Fund then held by the Acquired Fund specified in the
instruction provided pursuant to Section 2 hereof. The Acquiring Fund is not
required to issue certificates representing Acquiring Fund Shares. Upon
liquidation or dissolution of the Acquired Fund, certificates representing
shares of beneficial interest stock of the Acquired Fund shall become null
and void.
e. LIABILITIES. The Liabilities shall include all of Acquired Fund's
liabilities, debts, obligations, and duties of whatever kind or nature,
whether absolute, accrued, contingent, or otherwise, whether or not arising
in the ordinary course of business, whether or not determinable at the
Closing Date, and whether or not specifically referred to in this Agreement.
f. EXPENSES. The expenses associated with the transactions contemplated herein
will be borne by Scudder Kemper Investments, Inc., investment manager for the
Funds.
g. LIQUIDATION AND DISSOLUTION. As soon as practicable after the Closing Date
but in no event later than one year after the Closing Date, the Board of
Trustees of the Acquired Fund shall take all necessary and proper action to
completely liquidate and terminate the Acquired Fund in accordance with
Massachusetts law and the Acquired Fund's Declaration of Trust. Immediately
after the Closing Date, the stock transfer books relating to the Acquired
Fund shall be closed and no transfer of shares shall thereafter be made on
such books.
A-2
<PAGE> 112
4. ACQUIRED FUND'S REPRESENTATIONS AND WARRANTIES.
The Acquired Fund hereby represents and warrants to the Acquiring Fund, which
representations and warranties are true and correct on the date hereof, and
agrees with the Acquiring Fund that:
a. ORGANIZATION. The Acquired Fund is a business trust duly formed, existing and
in good standing under the laws of the Commonwealth of Massachusetts and is
duly authorized to transact business in the Commonwealth of Massachusetts.
The Acquired Fund is qualified to do business in all jurisdictions in which
it is required to be so qualified, except jurisdictions in which the failure
to so qualify would not have a material adverse effect on the Acquired Fund.
The Acquired Fund has all material federal, state and local authorizations
necessary to own all of the properties and assets and to carry on its
business as now being conducted, except authorizations which the failure to
so obtain would not have a material adverse effect on the Acquired Fund.
b. REGISTRATION. The Acquired Fund is registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as an open-end management company
and such registration has not been revoked or rescinded. The Acquired Fund is
a diversified fund. The Acquired Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder. All of
the outstanding shares of beneficial interest of the Acquired Fund have been
duly authorized and are validly issued, fully paid and nonassessable and not
subject to pre-emptive or dissenters' rights.
c. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities and the
portfolio of investments and the related statements of operations and changes
in net assets of the Acquired Fund audited as of and for the fiscal year
ended November 30, 1998, true and complete copies of which have been
heretofore furnished to the Acquiring Fund, fairly represent the financial
condition and the results of operations of the Acquired Fund as of and for
their respective dates and periods in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved.
d. FINANCIAL STATEMENTS. The Acquired Fund shall furnish to the Acquiring Fund
an unaudited statement of assets and liabilities as of and for the interim
period ending on the Closing Date; such financial statements will represent
fairly the financial position and portfolio of investments and the results of
the Acquired Fund's operations as of, and for the period ending on, the dates
of such statements in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved and the
results of its operations and changes in financial position for the periods
then ended; and such financial statements shall be certified by the Treasurer
of the Acquired Fund as complying with the requirements hereof.
e. CONTINGENT LIABILITIES. There are no contingent Liabilities of the Acquired
Fund not disclosed in the financial statements delivered pursuant to Sections
4c and 4d which would materially affect the Acquired Fund's financial
condition, and there are no legal, administrative, or other proceedings
pending or, to its knowledge, threatened against the Acquired Fund which
would, if adversely determined, materially affect the Acquired Fund's
financial condition. All Liabilities were incurred by the Acquired Fund in
the ordinary course of its business.
f. MATERIAL AGREEMENTS. The Acquired Fund is in compliance with all material
agreements, rules, laws, statutes, regulations and administrative orders
affecting its operations or its assets; and except as referred to in the
Acquired Fund's Prospectus and Statement of Additional Information, there are
no material agreements outstanding relating to the Acquired Fund to which the
Acquired Fund is a party.
g. TAX RETURNS. At the date hereof, all federal and other material tax returns
and reports of the Acquired Fund required by law to have been filed by such
dates shall have been filed, and all federal and other taxes shown thereon
shall have been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted with
respect to any such return.
h. CORPORATE AUTHORITY. The Acquired Fund has the necessary power to enter into
this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this
A-3
<PAGE> 113
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by the Acquired Fund's Board of Trustees, and except for
obtaining approval of the holders of the shares of the Acquired Fund, no
other corporate acts or proceedings by the Acquired Fund are necessary to
authorize this Agreement and the transactions contemplated herein. This
Agreement has been duly executed and delivered by the Acquired Fund and
constitutes the legal, valid and binding obligation of Acquired Fund
enforceable in accordance with its terms.
i. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and performance
of this Agreement by the Acquired Fund does not and will not (i) violate any
provision of the Acquired Fund's Declaration of Trust, (ii) violate any
statute, law, judgment, writ, decree, order, regulation or rule of any court
or governmental authority applicable to the Acquired Fund, (iii) result in a
violation or breach of, or constitute a default under any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument or
obligation to which the Acquired Fund is subject, or (iv) result in the
creation or imposition or any lien, charge or encumbrance upon any property
or assets of the Acquired Fund. No consent, approval, authorization, order or
filing with or notice to any court or governmental authority or agency is
required for the consummation by the Acquired Fund of the transactions
contemplated by this Agreement and no consent of or notice to any third party
or entity is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement.
j. TITLE. The Acquired Fund has good and marketable title to the Assets, free
and clear of all liens, mortgages, pledges, encumbrances, charges, claims and
equities whatsoever other than a lien for taxes not yet due and payable, and
full right, power and authority to sell assign, transfer and deliver such
Assets; upon delivery of such Assets, the Acquiring Fund will receive good
and marketable title to such Assets, free and dear of all liens, mortgage
encumbrances, charges, claims and equities other than a lien for taxes not
yet due and payable.
k. PROSPECTUS/PROXY STATEMENT. The Registration Statement and the
Prospectus/Proxy Statement contained therein as of the effective date of the
Registration Statement, as amended or as supplemented if it shall have been
amended or supplemented, conforms and will conform as it relates to the
Acquired Fund, in all material respects, to the applicable requirements of
the applicable federal and state securities laws and the rules and
regulations of the SEC thereunder, and do not and will not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representations or warranties in this Section 4k apply to statements or
omissions made in reliance upon and in conformity with written information
concerning the Acquiring Fund furnished to the Acquired Fund by the Acquiring
Fund.
l. TAX QUALIFICATION. The Acquired Fund has qualified or will qualify as a
regulated investment company within the meaning of Section 851 of the Code
for each of its taxable years ending on or prior to the Closing Date; and has
satisfied or will satisfy the distribution requirements imposed by Section
852 of the Code for each of its taxable years ending on or prior to the
Closing Date.
m. FAIR MARKET VALUE. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by the Acquiring
Fund and those to which the Assets are subject.
5. THE ACQUIRING FUND'S REPRESENTATIONS AND WARRANTIES.
The Acquiring Fund hereby represents and warrants to the Acquired Fund, which
representations and warranties are true and correct on the date hereof, and
agrees with the Acquired Fund that:
a. ORGANIZATION. The Acquiring Fund is a business trust duly formed, existing
and in good standing under the laws of the Commonwealth of Massachusetts and
is duly authorized to transact business in the Commonwealth of Massachusetts.
The Acquiring Fund is qualified to do business in all jurisdictions in which
it is required to be so qualified, except jurisdictions in which the failure
to so qualify would not have a material adverse effect on the Acquiring Fund.
The Acquiring Fund has all material federal, state and local authorizations
necessary to own all of the properties and assets and to carry on its
business
A-4
<PAGE> 114
and the business thereof as now being conducted, except authorizations which
the failure to so obtain would not have a material adverse effect on the
Acquiring Fund.
b. REGISTRATION. The Acquiring Fund is registered under the 1940 Act as an
open-end management company and such registration has not been revoked or
rescinded. The Acquiring Fund is a diversified fund. The Acquiring Fund is in
compliance in all material respects with the 1940 Act and the rules and
regulations thereunder. All of the outstanding shares of beneficial interest
of the Acquiring Fund have been duly authorized and are validly issued, fully
paid and non-assessable and not subject to pre-emptive dissenters rights.
c. AUDITED FINANCIAL STATEMENTS. The statement of assets and liabilities and the
portfolio of investments and the related statements of operations and changes
in net assets of the Acquiring Fund audited as of and for the fiscal year
ended October 31, 1998, true and complete copies of which have been
heretofore furnished to the Acquired Fund fairly represent the financial
condition and the results of operations of the Acquiring Fund as of and for
their respective dates and periods in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved.
d. FINANCIAL STATEMENTS. The Acquiring Fund shall furnish to the Acquired Fund
an unaudited statement of assets and liabilities as of and for the interim
period ending on the Closing Date; such financial statements will represent
fairly the financial position and portfolio of investments and the results of
its operations as of, and for the period ending on, the dates of such
statements in conformity with generally accepted accounting principles
applied on a consistent basis during the periods involved and the results of
its operations and changes in financial position for the periods then ended;
and such financial statements shall be certified by the Treasurer of the
Acquiring Fund as complying with the requirements hereof.
e. CONTINGENT LIABILITIES. There are no contingent liabilities of the Acquiring
Fund not disclosed in the financial statements delivered pursuant to Sections
5c and 5d which would materially affect the Acquiring Fund's financial
condition, and there are no legal, administrative, or other proceedings
pending or, to its knowledge, threatened against the Acquiring Fund which
would, if adversely determined, materially affect the Acquiring Fund's
financial condition.
f. MATERIAL AGREEMENTS. The Acquiring Fund is in compliance with all material
agreements, rules, laws, statutes, regulations and administrative orders
affecting its operations or its assets; and except as referred to in the
Acquiring Fund Prospectus and Statement of Additional Information there are
no material agreements outstanding relating to the Acquiring Fund to which
the Acquiring Fund is a party.
g. TAX RETURNS. At the date hereof, all federal and other material tax returns
and reports of the Acquiring Fund required by law to have been filed by such
dates shall have been filed, and all federal and other taxes shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to any
such return.
h. CORPORATE AUTHORITY. The Acquiring Fund has the necessary power to enter into
this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly authorized by the
Acquiring Fund's Board of Trustees, no other corporate acts or proceedings by
the Acquiring Fund are necessary to authorize this Agreement and the
transactions contemplated herein. This Agreement has been duly executed and
delivered by the Acquiring Fund and constitutes a valid and binding
obligation of the Acquiring Fund enforceable in accordance with its terms.
i. NO VIOLATION; CONSENTS AND APPROVALS. The execution, delivery and performance
of this Agreement by the Acquiring Fund does not and will not (i) violate any
provision of the Acquiring Fund's Declaration of Trust, (ii) violate any
statute, law, judgment, writ, decree, order, regulation or rule of any court
or governmental authority applicable to the Acquiring Fund, (iii) result in a
violation or breach of, or constitute a default under, any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument or
obligation to which the Acquiring Fund is subject or (iv) result in the
creation or
A-5
<PAGE> 115
imposition or any lien, charge or encumbrance upon any property or assets of
the Acquiring Fund. No consent, approval, authorization, order or filing with
or notice to any court or governmental authority or agency is required for
the consummation by the Acquiring Fund of the transactions contemplated by
this Agreement and no consent of or notice to any third party or entity is
required for the consummation by the Acquiring Fund of the transactions
contemplated by this Agreement.
j. ABSENCE OF PROCEEDINGS. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the Acquiring
Fund which would materially affect its financial condition.
k. SHARES OF THE ACQUIRING FUND: AUTHORIZATION. The Acquiring Fund Shares to be
issued pursuant to Section 1 hereof have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued and fully
paid and non-assessable by the Acquiring Fund and conform in all material
respects to the description thereof contained in the Acquiring Fund's
Prospectus furnished to the Acquired Fund.
l. SHARES OF THE ACQUIRING FUND: REGISTRATION. The Acquiring Fund Shares to be
issued pursuant to Section 1 hereof will be duly registered under the
Securities Act and all applicable state securities laws.
m. REGISTRATION STATEMENT. The Registration Statement and the Prospectus/Proxy
Statement contained therein as of the effective date of the Registration
Statement, and at all times subsequent thereto up to and including the
Closing Date, as amended or as supplemented if they shall have been amended
or supplemented, conforms and will conform as it relates to the Acquiring
Fund, in all material respects, to the applicable requirements of the
applicable federal securities laws and the rules and regulations of the SEC
thereunder, and do not and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representations or warranties in this Section 5M apply to statements or
omissions made in reliance upon and in conformity with written information
concerning the Acquired Fund furnished to the Acquiring Fund by the Acquired
Fund.
n. TAX QUALIFICATION. The Acquiring Fund has qualified or will qualify as a
regulated investment company within the meaning of Section 851 of the Code
for each of its taxable years ending prior to the Closing Date and for its
taxable year that includes the Closing Date; and has satisfied or will
satisfy the distribution requirements imposed by Section 852 of the Code for
each of its taxable years ending prior to the Closing Date and for its
taxable year that includes the Closing Date.
6. COVENANTS.
During the period from the date of this Agreement and continuing until the
Closing Date the Acquired Fund and Acquiring Fund (except as expressly
contemplated or permitted by this Agreement) agree as follows:
a. OTHER ACTIONS. The Acquired Fund and Acquiring Fund shall operate only in the
ordinary course of business consistent with prior practice. No party shall
take any action that would, or reasonably would be expected to, result in any
of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect.
b. GOVERNMENT FILINGS; CONSENTS. The Acquired Fund and Acquiring Fund shall file
all reports required to be filed by the Acquired Fund and Acquiring Fund with
the SEC between the date of this Agreement and the Closing Date and shall
deliver to the other party copies of all such reports promptly after the same
are filed. Except where prohibited by applicable statutes and regulations,
each party shall promptly provide the other (or its counsel) with copies of
all other filings made by such party with any state, local or federal
government agency or entity in connection with this Agreement or the
transactions contemplated hereby. Each of the Acquired Fund and the Acquiring
Fund shall use all reasonable efforts to obtain all consents, approvals, and
authorizations required in connection with the consummation of
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the transactions contemplated by this Agreement and to make all necessary
filings with the Secretary of State of the Commonwealth of Massachusetts.
c. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROSPECTUS/PROXY
STATEMENT. In connection with the Registration Statement and the
Prospectus/Proxy Statement, each party hereto will cooperate with the other
and furnish to the other the information relating to the Acquired Fund or
Acquiring Fund, as the case may be, required by the Securities Act or the
Exchange Act and the rules and regulations thereunder, as the case may be, to
be set forth in the Registration Statement or the Prospectus/Proxy Statement,
as the case may be. The Acquired Fund shall promptly prepare and provide the
Prospectus/ Proxy Statement to the Acquiring Fund and the Acquiring Fund
shall promptly prepare and file with the SEC the Registration Statement, in
which the Prospectus/Proxy Statement will be included as a prospectus. In
connection with the Registration Statement, insofar as it relates to the
Acquired Fund and its affiliated persons, the Acquiring Fund shall only
include such information as is approved by the Acquired Fund for use in the
Registration Statement. The Acquiring Fund shall not amend or supplement any
such information regarding the Acquired Fund and such affiliates without the
prior written consent of the Acquired Fund which consent shall not be
unreasonably withheld or delayed. The Acquiring Fund shall promptly notify
and provide the Acquired Fund with copies of all amendments or supplements
filed with respect to the Registration Statement. The Acquiring Fund shall
use all reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such
filing. The Acquiring Fund shall also take any action (other than qualifying
to do business in any jurisdiction in which it is now not so qualified)
required to be taken under any applicable state securities laws in connection
with the issuance of the Acquiring Fund's shares of beneficial interest in
the transactions contemplated by this Agreement, and the Acquired Fund shall
furnish all information concerning the Acquired Fund and the holders of the
Acquired Fund's shares of beneficial interest as may be reasonably requested
in connection with any such action.
d. ACCESS TO INFORMATION. During the period prior to the Closing Date, the
Acquired Fund shall make available to the Acquiring Fund a copy of each
report, schedule, registration statement and other documents (each, a
"Document", collectively, the "Documents") filed or received by it during
such period pursuant to the requirements of federal or state securities laws
(other than Documents which such party is not permitted to disclose under
applicable law). During the period prior to the Closing Date, the Acquiring
Fund shall make available to the Acquired Fund each Document pertaining to
the transactions contemplated hereby filed or received by it during such
period pursuant to federal or state securities laws (other than Documents
which such party is not permitted to disclose under applicable law).
e. SHAREHOLDERS MEETING. The Acquired Fund shall call a meeting of the Acquired
Fund shareholders to be held as promptly as practicable for the purpose of
voting upon the approval of this Agreement and the transactions contemplated
herein, and shall furnish a copy of the Prospectus/Proxy Statement and form
of proxy to each shareholder of the Acquired Fund as of the record date for
such meeting of shareholders. The Board shall recommend to the Acquired Fund
shareholders' approval of this Agreement and the transactions contemplated
herein, subject to fiduciary obligations under applicable law.
f. COORDINATION OF PORTFOLIOS. The Acquired Fund and Acquiring Fund covenant and
agree to coordinate the respective portfolios of the Acquired Fund and
Acquiring Fund from the date of the Agreement up to and including the Closing
Date in order when the Assets are added to the Acquiring Fund's portfolio,
the resulting portfolio will meet the Acquiring Fund's investment objective,
policies and restrictions, as set forth in the Acquiring Fund's Prospectus, a
copy of which has been delivered to the Acquired Fund.
g. DISTRIBUTION OF THE SHARES. On the Closing Date, the Acquired Fund covenants
that it shall cause to be distributed the Acquiring Fund Shares in the proper
pro rata amount for the benefit of Acquired Fund's shareholders and such that
the Acquired Fund shall not continue to hold amounts of said shares so as to
cause a violation of Section 12(d)(1) of the 1940 Act. The Acquired Fund
covenants further that, pursuant to Section 3g, it shall liquidate and
dissolve as promptly as practicable after the Closing Date.
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The Acquired Fund covenants to use all reasonable efforts to cooperate with
the Acquiring Fund and the Acquiring Fund's transfer agent in the
distribution of said shares.
h. BROKERS OR FINDERS. Except as disclosed in writing to the other party prior
to the date hereof, each of the Acquired Fund and the Acquiring Fund
represents that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement, and each party shall hold the
other harmless from and against any all claims, liabilities or obligations
with respect to any such fees, commissions or expenses asserted by any person
to be due or payable in connection with any of the transactions contemplated
by this Agreement on the basis of any act or statement alleged to have been
made by such first party or its affiliate.
i. ADDITIONAL AGREEMENTS. In case at any time after the Closing Date any further
action is necessary or desirable in order to carry out the purposes of this
Agreement the appropriate party or parties to this Agreement shall take all
such necessary action.
j. PUBLIC ANNOUNCEMENTS. For a period of time from the date of this Agreement to
the Closing Date, the Acquired Fund and the Acquiring Fund will consult with
each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
herein and shall not issue any press release or make any public statement
prior to such consultation, except as may be required by law or the rules of
any national securities exchange on which such party's securities are traded.
k. TAX STATUS OF REORGANIZATION. The intention of the parties is that the
transaction will qualify as a reorganization within the meaning of Section
368(a) of the Code. Neither the Acquiring Fund nor the Acquired Fund shall
take any action, or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within the meaning of Section 368(a) of the Code. At or prior
to the Closing Date, the Acquiring Fund and the Acquired Fund will take such
action, or cause such action to be taken, as is reasonably necessary to
enable Vedder, Price, Kaufman & Kammholz, counsel to both Funds, to render
the tax opinion contemplated herein.
l. DECLARATION OF DIVIDEND. At or immediately prior to the Closing Date, the
Acquired Fund may declare and pay to its stockholders a dividend or other
distribution in an amount large enough so that it will have distributed
substantially all (and in any event not less than 98%) of its investment
company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
7. CONDITIONS TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund hereunder with respect to the consummation
of the Reorganization are subject to the satisfaction, or written waiver by the
Acquired Fund, of the following conditions:
a. ACQUIRED FUND SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated herein shall have been approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of beneficial
interest in the Acquired Fund.
b. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations and
warranties of the Acquiring Fund contained herein shall be true in all
material respects as of the Closing Date, and as of the Closing Date there
shall have been no material adverse change in the financial condition,
results of operations, business properties or assets of the Acquiring Fund,
and the Acquired Fund shall have received a certificate of an authorized
officer of the Acquiring Fund satisfactory in form and substance to the
Acquired Fund so stating. The Acquiring Fund shall have performed and
complied in all material respects with all agreements, obligations and
covenants required by this Agreement to be so performed or complied with by
it on or prior to the Closing Date.
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c. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining
thereto shall have been issued.
d. REGULATORY APPROVAL. All necessary approvals, registrations, and exemptions
under federal and state securities laws shall have been obtained.
e. NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the transactions contemplated by
this Agreement shall be in effect, nor shall any proceeding by any state,
local or federal government agency or entity asking any of the foregoing be
pending. There shall not be any action taken or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the transactions
contemplated by this Agreement, which makes the consummation of the
transactions contemplated by this Agreement illegal or which has a material
adverse effect on business operations of the Acquiring Fund.
f. TAX OPINION. The Acquired Fund shall have obtained an opinion from Vedder,
Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of the
Closing Date, addressed to the Acquired Fund and Acquiring Fund, that the
consummation of the transactions set forth in this Agreement comply with the
requirements of a reorganization as described in Section 368(a) of the Code,
substantially in the form attached as Annex A.
g. OPINION OF COUNSEL. The Acquired Fund shall have received the opinion of
Vedder, Price, Kaufman & Kammholz, counsel for the Acquiring Fund, dated as
of the Closing Date, addressed to the Acquired Fund substantially in the form
and to the effect that (i) the Acquiring Fund is duly organized and existing
under the laws of the Commonwealth of Massachusetts as a voluntary
association with transferable shares of beneficial interest commonly referred
to as a "Massachusetts business trust"; (ii) the Acquiring Fund is registered
as an open-end management company under the 1940 Act, (iii) this Agreement
and the reorganization provided for herein and the execution of this
Agreement have been duly authorized and approved by all requisite action of
the Acquiring Fund and this Agreement has been duly executed and delivered by
the Acquiring Fund and (assuming the Agreement is a valid and binding
obligation of the other parties thereto) is a valid and binding obligation of
the Acquiring Fund, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
similar law affecting creditors' rights generally, or by general principals
of equity (regardless of whether enforcement is sought in a proceeding at
equity at law); (iv) neither the execution or delivery by the Acquiring Fund
of this Agreement nor the consummation by the Acquiring Fund of the
transactions contemplated thereby contravene the Acquiring Fund's Declaration
of Trust, or, to the best of their knowledge, violate any provision of any
statute or any published regulation or any judgment or order disclosed to it
by the Acquiring Fund as being applicable to the Acquiring Fund, (v) to the
best of their knowledge based solely on the certificate of an appropriate
officer of the Acquiring Fund attached hereto, there is no pending or
threatened litigation which would have the effect of prohibiting any material
business practice or the acquisition of any material property or the conduct
of any material business of the Acquiring Fund or might have a material
adverse effect on the value of any assets of the Acquiring Fund; (vi) the
Acquiring Fund Shares have been duly authorized and upon issuance thereof in
accordance with this Agreement will, subject to certain matters regarding the
liability of a shareholder of a Massachusetts business trust, be validly
issued, fully paid and nonassessable; (vii) except as to financial statements
and schedules and other financial and statistical data included or
incorporated by reference therein and subject to usual and customary
qualifications with respect to Rule 10b-5 type opinions, as of the effective
date of the Registration Statement filed pursuant to the Agreement, the
portions thereof pertaining to the Acquiring Fund comply as to form in all
material respects with the requirements of the Securities Act, the Securities
Exchange Act and the 1940 Act and the rules and regulations of the SEC
thereunder and no facts have come to counsel's attention which would cause
them to believe that as of the effectiveness of the portions of the
Registration Statement applicable to the Acquiring Fund, the Registration
Statement contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (viii) to the best of its
knowledge and
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information and subject to the qualifications set forth below, the execution
and delivery by the Acquiring Fund of the Agreement and the consummation of
the transactions therein contemplated do not require, under the laws of the
Commonwealth of Massachusetts, laws of the State of Illinois or the federal
laws of the United States, the consent, approval, authorization,
registration, qualification or order of, or filing with, any court or
governmental agency or body (except such as have been obtained). Counsel need
express no opinion, however, as to any such consent, approval, authorization,
registration, qualification, order or filing (a) which may be required as a
result of the involvement of parties to the Agreement in the transactions
contemplated by the Agreement because of their legal or regulatory status or
because of any other facts specifically pertaining to them; (b) the absence
of which does not deprive the Acquired Fund of any material benefit under the
Agreement; or (c) which can be readily obtained without significant delay or
expense to the Acquired Fund, without loss to the Acquired Fund of any
material benefit under the Agreement and without any material adverse effect
on the Acquired Fund during the period such consent, approval, authorization,
registration, qualification or order was obtained. The foregoing opinion
relates only to consents, approvals, authorizations, registrations,
qualifications, orders or filings under (a) laws which are specifically
referred to in this opinion, (b) laws of the Commonwealth of Massachusetts,
laws of the State of Illinois or the federal laws of the United States which,
in counsel's experience, are normally applicable to transactions of the type
provided for in the Agreement and (c) court orders and judgments disclosed to
counsel by the Acquiring Fund in connection with the opinion. In addition,
although counsel need not specifically have considered the possible
applicability to the Acquiring Fund of any other laws, orders or judgments,
nothing has come to their attention in connection with their representation
of the Acquiring Fund in this transaction that has caused them to conclude
that any other consent, approval, authorization, registration, qualification,
order or filing is required. In giving the opinions set forth above, counsel
may state that it is relying on certificates of officers of the Acquiring
Fund with regard to matters of fact and certain certificates and written
statements of government officers with respect to the good standing of the
Acquiring Fund and on the opinion of Ropes & Gray as to matters of
Massachusetts law.
h. OFFICER CERTIFICATES. The Acquired Fund shall have received a certificate of
an authorized officer of the Acquiring Fund, dated as of the Closing Date,
certifying that (i) the representations and warranties set forth in Section 5
are true and correct on the Closing Date, together with certified copies of
the resolutions adopted by the Board of Trustees shall be furnished to the
Acquired Fund and that (ii) from the date hereof through the Closing Date,
there shall not have been any change in the business, results of operations,
assets or financial condition or the manner of conducting the business of the
Acquiring Fund, other than changes in the ordinary course of its business,
which has had a material adverse effect on such business, results of
operations, assets or financial condition.
8. CONDITIONS TO OBLIGATIONS OF ACQUIRING FUND.
The obligations of the Acquiring Fund hereunder with respect to the consummation
of the Reorganization are subject to the satisfaction, or written waiver by the
Acquiring Fund of the following conditions:
a. ACQUIRED FUND SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated herein shall have been approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of beneficial
interest of the Acquired Fund.
b. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of the representations and
warranties of the Acquired Fund contained herein shall be true in all
material respects as of the Closing Date, and as of the Closing Date there
shall have been no material adverse change in the financial condition,
results of operations, business, properties or assets of the Acquired Fund,
and the Acquiring Fund shall have received a certificate of an authorized
officer of the Acquired Fund satisfactory in form and substance to the
Acquiring Fund so stating. The Acquired Fund shall have performed and
complied in all material respects with all agreements, obligations and
covenants required by this Agreement to be so performed or complied with by
them on or prior to the Closing Date.
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c. REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining
thereto shall have been issued.
d. REGULATORY APPROVAL. All necessary approvals, registrations, and exemptions
under federal and state securities laws shall have been obtained.
e. NO INJUNCTIONS OR RESTRAINTS: ILLEGALITY. No injunction preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding by any state, local or federal government
agency or entity seeking any of the foregoing be pending. There shall not be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes the consummation of the transactions contemplated by
this Agreement illegal.
f. TAX OPINION. The Acquiring Fund shall have obtained an opinion from Vedder,
Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of the
Closing Date, addressed to the Acquired Fund and Acquiring Fund, that the
consummation of the transactions set forth in this Agreement comply with the
requirements of a reorganization as described in Section 368(a) of the Code,
substantially in the form attached as Annex A.
g. OPINION OF COUNSEL. The Acquiring Fund shall have received the opinion of
Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of
the Closing Date, addressed to the Acquiring Fund, substantially in the form
and to the effect that: (i) the Acquired Fund is duly organized and existing
under the laws of the Commonwealth of Massachusetts as a voluntary
association with transferable shares of beneficial interest commonly referred
to as a "Massachusetts business trust" (ii) the Acquired Fund is registered
as an open-end management company under the 1940 Act; (iii) this Agreement
and the reorganization provided for herein and the execution of this
Agreement have been duly authorized by all requisite action of the Acquired
Fund and this Agreement has been duly executed and delivered by the Acquired
Fund and (assuming the Agreement is a valid and binding obligation of the
other parties thereto) is a valid and binding obligation of the Acquired
Fund, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar law affecting
creditors' rights generally, or by general principals of equity (regardless
of whether enforcement is sought in a proceeding at equity or law); (iv)
neither the execution or delivery by the Acquired Fund Trust of this
Agreement nor the consummation by the Acquired Fund of the transactions
contemplated thereby contravene the Acquired Fund's Declaration of Trust or,
to their knowledge, violate any provision of any statute, or any published
regulation or any judgment or order disclosed to them by the Acquired Fund as
being applicable to the Acquired Fund; (v) to the best of their knowledge
based solely on the certificate of an appropriate officer of the Acquired
Fund attached thereto, there is no pending, or threatened litigation
involving the Acquired Fund except as disclosed therein; (vii) except as to
financial statements and schedules and other financial and statistical data
included or incorporated by reference therein and subject to usual and
customary qualifications with respect to Rule 10b-5 type opinions, as of the
effective date of the Registration Statement filed pursuant to the Agreement,
the portions thereof pertaining to the Acquired Fund comply as to form in all
material respects with their requirements of the Securities Act, the
Securities Exchange Act and the 1940 Act and the rules and regulations of the
SEC thereunder and no facts have come to counsel's attention which cause them
to believe that as of the effectiveness of the portions of the Registration
Statement applicable to the Acquired Fund, the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (viii) to their knowledge and subject
to the qualifications set forth below, the execution and delivery by the
Acquired Fund of the Agreement and the consummation of the transactions
therein contemplated do not require, under the laws of the Commonwealth of
Massachusetts, laws of the State of Illinois or the federal laws of the
United States, the consent, approval, authorization, registration,
qualification or order of, or filing with, any court or governmental agency
or body (except such as have been obtained), except for the filing of an
amendment to the Acquired Fund's Declaration of Trust in connection with the
termination of the Acquired Fund. Counsel need express no opinion, however,
as to any such consent, approval, authorization,
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registration, qualification, order or filing (a) which may be required as a
result of the involvement of other parties to the Agreement in the
transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to
them; (b) the absence of which does not deprive the Acquiring Fund of any
material benefit under such agreements; or (c) which can be readily obtained
without significant delay or expense to the Acquiring Fund, without loss to
the Acquiring Fund of any material benefit under the Agreement and without
any material adverse effect on them during the period such consent, approval
authorization, registration, qualification or order was obtained. The
foregoing opinion relates only to consents, approvals, authorizations,
registrations, qualifications, orders or filings under (a) laws which are
specifically referred to in the opinion, (b) laws of the Commonwealth of
Massachusetts, laws of the State of Illinois or the federal laws of the
United States which, in our experience, are normally applicable to
transactions of the type provided for in the Agreement and (c) court orders
and judgments disclosed to counsel by the Acquired Fund in connection with
the opinion. In addition, although counsel need not specifically consider the
possible applicability to the Acquired Fund of any other laws, orders or
judgments, nothing has come to their attention in connection with their
representation of the Acquired Fund in this transaction that has caused them
to conclude that any other consent, approval, authorization, registration,
qualification, order or filing is required. In giving the opinion set forth
above, counsel may state that it is relying on certificates of officers of
the Acquired Fund with regard to matters of fact and certain certificates and
written statutes of government officers with respect to the good standing of
the Acquired Fund and on the opinion of Ropes & Gray as to matters of
Massachusetts law.
h. SHAREHOLDER LIST. The Acquired Fund shall have delivered to the Acquiring
Fund an updated list of all shareholders of the Acquired Fund, as reported by
the Acquired Fund's transfer agent, as of one (1) business day prior to the
Closing Date with each shareholder's respective holdings in the Acquired
Fund, taxpayer identification numbers, Form W-9 and last known address.
i. OFFICER CERTIFICATES. The Acquiring Fund shall have received a certificate of
an authorized officer of the Acquired Fund, dated as of the Closing Date,
certifying that (i) the representations and warranties set forth in Section 4
are true and correct on the Closing Date, together with certified copies of
the resolutions adopted by the Board of Trustees and shareholders and that
(ii) from the date of this Agreement through the Closing Date, there shall
not have been:
i. any change in the business, results of operations, assets, or
financial condition or the manner of conducting the business of the
Acquired Fund, other than changes in the ordinary course of its
business, or any pending or threatened litigation, which has had or
may have a material adverse effect on such business, results of
operations, assets or financial condition;
ii. issued any option to purchase or other right to acquire shares of the
Acquired Fund granted by the Acquired Fund to any person other than
subscriptions to purchase shares at net asset value in accordance
with terms in the Prospectus for the Acquired Fund;
iii. any entering into, amendment or termination of any contract or
agreement by Acquired Fund, except as otherwise contemplated by this
Agreement;
iv. any indebtedness incurred, other than in the ordinary course of
business, by the Acquired Fund for borrowed money or any commitment to
borrow money entered into by the Acquired Fund;
v. any amendment of the Acquired Fund's Declaration of Trust; or
vi. any grant or imposition of any lien, claim, charge or encumbrance
(other than encumbrances arising in the ordinary course of business
with respect to covered options) upon any asset of the Acquired Fund
other than a lien for taxes not yet due and payable.
9. AMENDMENT, WAIVER AND TERMINATION.
a. The parties hereto may, by agreement in writing authorized by the Board,
amend this Agreement at any time before or after approval thereof by the
shareholders of the Acquired Fund; provided, however,
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that after receipt of Acquired Fund shareholder approval, no amendment shall
be made by the parties hereto which substantially changes the terms of
Sections 1, 2 and 3 hereof without obtaining Acquired Fund's shareholder
approval thereof.
b. At any time prior to the Closing Date, either of the parties may by written
instrument signed by it (i) waive any inaccuracies in the representations and
warranties made to it contained herein and (ii) waive compliance with any of
the covenants or conditions made for its benefit contained herein. No delay
on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
c. This Agreement may be terminated, and the transactions contemplated herein
may be abandoned at any time prior to the Closing Date:
i. by the mutual consents of the Board of the Acquiring Fund and the
Acquired Fund;
ii. by the Acquired Fund, if the Acquiring Fund breaches in any material
respect any of its representations, warranties, covenants or
agreements contained in this Agreement and fails to cure promptly
such breach after receipt of notice thereof;
iii. by the Acquiring Fund, if the Acquired Fund breaches in any material
respect any of its representations, warranties, covenants or
agreements contained in this Agreement and fails to cure promptly
such breach after receipt of notice thereof;
iv. by either the Acquired Fund or Acquiring Fund, if the Closing has not
occurred on or prior to March 31, 1999 (provided that the rights to
terminate this Agreement pursuant to this subsection (C)(iv) shall not
be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of or resulted in
the failure of the Closing to occur on or before such date).
10. REMEDIES.
In the event of termination of this Agreement by either or both of the Acquired
Fund and Acquiring Fund pursuant to Section 9c, written notice thereof shall
forthwith be given by the terminating party to the other party hereto, and this
Agreement shall therefore terminate and become void and have no effect, and the
transactions contemplated herein and thereby shall be abandoned, without further
action by the parties hereto. However, this Section 10 shall not limit the
remedies available for a breach of this Agreement prior to its termination.
11. SURVIVAL.
The provisions set forth in Sections 10 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever. The representations and
warranties included or provided for herein, or in the Schedules or other
instruments delivered or to be delivered pursuant hereto shall not survive the
Closing Date.
12. NOTICES.
All notices hereunder shall be sufficiently given for all purposes hereunder if
in writing and delivered personally or sent by registered mail or certified
mail, postage prepaid. Notice to the Acquired Fund shall be addressed to Kemper
Quantitative Equity Fund, 222 South Riverside Drive, Chicago, Illinois 60606,
Attention: Secretary, with a copy to Vedder, Price, Kaufman & Kammholz, 222
North LaSalle Street, Chicago, Illinois 60601, Attention: David A. Sturms, or at
such other address and to the attention of such other person as the Acquired
Fund may designate by written notice to the Acquiring Fund. Notice to the
Acquiring Fund shall be addressed to Kemper Blue Chip Fund, 222 South Riverside
Drive, Chicago, Illinois, 60606, Attention: Secretary, with a copy to Vedder,
Price, Kaufman & Kammholz, 222 North
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LaSalle Street, Chicago, Illinois 60601, Attention: David A. Sturms, or at such
other address and to the attention of such other person as the Acquiring Fund
may designate by written notice to the Acquired Fund. Any notice shall be deemed
to have been served or given as of the date such notice is delivered personally
or mailed.
13. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns. This Agreement shall not be assigned by
any party without the prior written consent of the other party hereto.
14. BOOKS AND RECORDS.
The Acquired Fund and the Acquiring Fund agree that copies of the books and
records of the Acquired Fund relating to the Assets including, but not limited
to all files, records, written materials; e.g., closing transcripts,
surveillance files and credit reports shall be delivered by the Acquired Fund to
the Acquiring Fund at the Closing Date. In addition to, and without limiting the
foregoing, the Acquired Fund and the Acquiring Fund agree to take such action as
may be necessary in order that the Acquiring Fund shall have reasonable access
to such other books and records as may be reasonably requested, all for three
years after the Closing Date and for the last three tax years ending,
, and ; namely, general ledger,
journal entries, voucher registers; distribution journal; payroll register,
monthly balance owing report; income tax returns; tax depreciation schedules;
and investment tax credit basis schedules.
15. GENERAL.
This Agreement supersedes all prior agreements between the parties (written or
oral), is intended as a complete and exclusive statement of the terms of the
Agreement between the parties and may not be amended, modified or changed or
terminated orally. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by the Acquired Fund
and Acquiring Fund and delivered to each of the parties hereto. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. This Agreement is
for the sole benefit of the parties thereto, and nothing in this Agreement,
expressed or implied, is intended to confer upon any other person any rights or
remedies under or by reason of this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois without
regard to principles of conflicts or choice of law.
16. LIMITATION OF LIABILITY.
Consistent with the Acquiring Fund's and the Acquired Fund's Declarations of
Trust, notice is hereby given and the parties hereto acknowledge and agree that
this instrument is executed on behalf of the Trustees of each Trust as Trustee
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders of the Acquiring Fund or Acquired Fund
individually but binding only upon the assets and property of the Acquiring Fund
or the Acquired Fund as the case may be.
[SIGNATURE PAGE FOLLOWS]
A-14
<PAGE> 124
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
KEMPER BLUE CHIP FUND
By:
--------------------------------------
Attest:
- ---------------------------
KEMPER QUANTITATIVE EQUITY FUND
By:
--------------------------------------
Attest:
- ---------------------------
The undersigned is a party to this Agreement for the purposes of Section 3f
only.
SCUDDER KEMPER INVESTMENTS, INC.
By:
--------------------------------------
Attest:
- --------------------------
A-15
<PAGE> 125
ANNEX A
, 1998
KEMPER QUANTITATIVE EQUITY FUND
222 South Riverside Plaza
Chicago, IL 60606
KEMPER BLUE CHIP FUND
222 South Riverside Plaza
Chicago, IL 60606
Gentlemen:
You have requested our opinion regarding certain federal income tax consequences
of the proposed reorganization ("Reorganization") of Kemper Quantitative Equity
Fund ("Acquired Fund"), an open-end management investment company organized as a
business trust under the laws of the Commonwealth of Massachusetts into Kemper
Blue Chip Fund ("Acquiring Fund"), an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts. The Reorganization contemplates the acquisition by the Acquiring
Fund of substantially all the assets of the Acquired Fund in exchange for voting
shares of beneficial interest ("shares") of the Acquiring Fund and the
assumption by the Acquiring Fund of the Acquired Fund's liabilities. Thereafter,
the shares of the Acquiring Fund will be distributed to the shareholders of the
Acquired Fund and the Acquired Fund will be completely liquidated and
terminated. The foregoing will be accomplished pursuant to an Agreement and Plan
of Reorganization, dated as September 18, 1998 of (the "Plan"), entered into by
the Acquired Fund and the Acquiring Fund.
In rendering this opinion, we have received and relied upon statements made to
us by certain of your officers. We have also examined certificates of such
officers and such other agreements, documents, and corporate records that have
been made available to us and such other matters as we have deemed relevant for
purposes of this opinion. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the authenticity of the originals of such latter documents.
Our opinion is based, in part, on the assumption that the proposed
Reorganization described herein will occur in accordance with the Plan and
agreements and the facts and representations set forth or referred to in this
opinion letter, and that such facts and representations are accurate as of the
date hereof and will be accurate on the effective date of the Reorganization
(the "Effective Time"). As more fully discussed below, we have also assumed in
issuing our opinion that the shareholders of the Acquired Fund do not have any
plan or intention to dispose of a certain number of the Acquiring Fund shares
received by them in the Reorganization. We have undertaken no independent
investigation of the accuracy of the facts, representations and assumptions set
forth or referred to herein.
For the purposes indicated above, and based upon the facts, assumptions and
conditions as set forth herein, and the representations made to us by duly
authorized officers on behalf of the Acquired Fund and the Acquiring Fund in a
letter dated , 1998, it is our opinion that:
(1) The acquisition by the Acquiring Fund of substantially all the assets
of the Acquired Fund in exchange solely for Acquiring Fund voting
shares and the assumption by the Acquiring Fund of the Acquired Fund's
liabilities, if any, followed by the distribution by the Acquired Fund
of the Acquiring Fund shares to the shareholders of the Acquired Fund
in exchange for their Acquired Fund shares in complete liquidation of
the Acquired Fund, will constitute a "reorganization" within the
meaning of Section 368 (a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Acquiring Fund and the Acquired Fund will
each be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
A-1
<PAGE> 126
KEMPER QUANTITATIVE EQUITY FUND
KEMPER BLUE CHIP FUND
, 1998
Page 2
(2) The Acquired Fund shareholders will recognize no gain or loss upon the
exchange of all of their Acquired Fund shares for Acquiring Fund shares
in complete liquidation of the Acquired Fund (Code Section 354(a)(1));
(3) No gain or loss will be recognized by the Acquired Fund upon the
transfer of substantially all its assets to the Acquiring Fund in
exchange solely for Acquiring Fund shares and the assumption by the
Acquiring Fund of the Acquired Fund's liabilities, if any, and with
respect to the subsequent distribution of those Acquiring Fund shares
to the Acquired Fund shareholders in complete liquidation of the
Acquired Fund (Code Section 361);
(4) No gain or loss will be recognized by the Acquiring Fund upon the
acquisition of substantially all the Acquired Fund's assets in exchange
solely for Acquiring Fund shares and the assumption of the Acquired
Fund's liabilities, if any (Code Section 1032(a));
(5) The basis of the assets acquired by the Acquiring Fund will be, in each
instance, the same as the basis of those assets immediately before the
transfer when such assets were held by the Acquired Fund, and the
holding period of such assets acquired by the Acquiring Fund will
include the holding period thereof when such assets were held by the
Acquired Fund (Code Sections 362(b) and 1223(2));
(6) The basis of the Acquiring Fund shares to be received by the Acquired
Fund shareholders upon liquidation of the Acquired Fund will be, in
each instance, the same as the basis of the Acquired Fund shares
surrendered in exchange therefor (Code Section 358(a)(1)); and
(7) The holding period of the Acquiring Fund shares to be received by the
Acquired Fund shareholders will include the period during which the
Acquired Fund shares to be surrendered in exchange therefor were held,
provided such Acquired Fund shares were held as capital assets by those
shareholders on the date of the exchange (Code Section 1223(1)).
FACTS
Our opinion is based upon the above referenced representations and the following
facts and assumptions, any alteration of which could adversely affect our
conclusions.
The Acquired Fund has been registered and operated since it commenced operations
as an open-end, management investment company under the Investment Company Act
of 1940, 15 U.S.C. Section 80a, et seq. (the "1940 Act"). The Acquired Fund has
qualified and will qualify as a regulated investment company under Section 851
of the Code for each of its taxable years, and has distributed and will
distribute all or substantially all its income so that it and its shareholders
have been and will be taxed in accordance with Section 852 of the Code.
The Acquiring Fund is registered, has operated, and will continue to operate an
open-end, management investment company under the 1940 Act. It has qualified as
a regulated investment company under Section 851 of the Code for each of its
taxable years and anticipates so qualifying for all future years, and has
distributed and will distribute all or substantially all its income so that it
and its shareholders will be taxed in accordance with Section 852 of the Code.
Upon satisfaction of certain terms and conditions set forth in the Plan on or
before the Effective Time, the following will occur: (a) the Acquiring Fund will
acquire substantially all the assets of the Acquired Fund in exchange for the
Acquiring Fund's assumption of substantially all the liabilities of the Acquired
Fund and the issuance of Acquiring Fund shares to the Acquired Fund; (b) the
Acquiring Fund shares will be distributed to the shareholders of the Acquired
Fund in exchange for their Acquired Fund shares; and
A-2
<PAGE> 127
KEMPER QUANTITATIVE EQUITY FUND
KEMPER BLUE CHIP FUND
, 1998
Page 3
(c) the Acquired Fund will be dissolved and liquidated. The assets of the
Acquired Fund to be acquired by the Acquiring Fund consist primarily of equity
securities, cash and other securities held in the Acquired Fund's portfolio.
As soon as practicable after the Effective Time, the Acquired Fund will be
liquidated and will distribute the newly issued Acquiring Fund shares it
receives pro rata to its shareholders of record in exchange for such
shareholders' interests in the Acquired Fund. The liquidation and distribution
will be accomplished by opening accounts on the books of the Acquiring Fund in
the names of the shareholders of the Acquired Fund (on a class by class basis)
and transferring to those shareholder accounts the pro rata number of Acquiring
Fund shares of each respective class as was previously credited to the Acquired
Fund on the books.
As a result of the Reorganization, every shareholder of the Acquired Fund will
own Acquiring Fund shares that will have an aggregate per share net asset value
immediately after the Effective Time equal to the aggregate per share net asset
value of that shareholder's Acquired Fund shares immediately prior to the
Effective Time. Since the Acquiring Fund shares issued to the shareholders of
the Acquired Fund will be issued at net asset value in exchange for the net
assets of the Acquired Fund having a value equal to the aggregate per share net
asset value of those Acquiring Fund shares so issued, the net asset value of the
Acquiring Fund shares should remain virtually unchanged by the Reorganization.
The management of the Acquired Fund has represented to us that, to the best of
their knowledge, there is no current plan or intention on the part of any
Acquired Fund shareholders to sell, exchange, or otherwise dispose of a number
of Acquiring Fund shares received in the Reorganization that would reduce the
ownership by shareholders of the Acquired Fund to a number of shares of
Acquiring Fund having a value, as of the Effective Time, of less than 50 percent
of all the formerly outstanding shares of the Acquired Fund as of the same time.
In issuing our opinion, we have assumed that there is, in fact, no such plan or
intention. If such assumption were inaccurate, it could adversely affect the
opinions contained herein.
In approving the Reorganization, the Board of Trustees of the Acquired Fund
identified certain benefits that are likely to result from combining the funds,
including administrative and operating efficiencies. The Board also considered
the possible risks and costs of combining the funds and determined that the
Reorganization is likely to provide benefits to the shareholders of the funds
that outweigh the costs incurred.
CONCLUSION
Based on the foregoing, it is our opinion that the acquisition by the Acquiring
Fund, pursuant to the Plan, of substantially all the assets and liabilities of
the Acquired Fund in exchange for voting shares of the Acquiring Fund will
qualify as a reorganization under Code Section 368(a)(1).
Our opinions set forth above with respect to (1) the nonrecognition of gain or
loss to the Acquired Fund and the Acquiring Fund, (2) the basis and holding
period of the assets received by the Acquiring Fund, (3) the nonrecognition of
gain or loss to the Acquired Fund shareholders upon the receipt of the Acquiring
Fund shares, and (4) the basis and holding period of the Acquiring Fund shares
received by the Acquired Fund shareholders, follow as a matter of law from the
opinion that the acquisition under the Plan will qualify as a reorganization
under Code Section 368(a)(1).
The opinions expressed in this letter are based on the Code, the Income Tax
Regulations promulgated by the Treasury Department thereunder and judicial
authority reported as of the date hereof. We have also considered the position
of the Internal Revenue Service (the "Service") reflected in published and
private rulings. Although we are not aware of any pending changes to these
authorities that would alter our
A-3
<PAGE> 128
KEMPER QUANTITATIVE EQUITY FUND
KEMPER BLUE CHIP FUND
, 1998
Page 4
opinions, there can be no assurances that future legislative or administrative
changes, court decisions or Service interpretations will not significantly
modify the statements or opinions expressed herein.
Our opinions are limited to those federal income tax issues specifically
considered herein and are addressed to and are only for the benefit of the
Acquired Fund and the Acquiring Fund. We do not express any opinion as to any
other federal income tax issues, or any state or local law issues, arising from
the transactions contemplated by the Plan. Although the discussion herein is
based upon our best interpretation of existing sources of law and expresses what
we believe a court would properly conclude if presented with these issues, no
assurance can be given that such interpretations would be followed if they were
to become the subject of judicial or administrative proceedings.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the captions "PROPOSAL
2. APPROVAL OF THE REORGANIZATION -- The Proposed Reorganization -- Certain
Federal Income Tax Consequences" and "Legal Matters" in the Prospectus/Proxy
Statement contained in such Registration Statement. In giving such consent, we
do not thereby concede that we are within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
A-4
<PAGE> 129
KEMPER EQUITY FUNDS/GROWTH STYLE
Kemper Aggressive Growth Fund
Kemper Blue Chip Fund
Kemper Growth Fund
Kemper Quantitative Equity Fund
Kemper Small Capitalization Equity Fund
Kemper Technology Fund
Kemper Total Return Fund
Kemper Value Plus Growth Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1998
-------------------------
KEMPER INCOME FUNDS
Kemper Adjustable Rate U.S. Government Fund
Kemper Diversified Income Fund
Kemper U.S. Government Securities Fund
Kemper High Yield Series
comprised of the following two series:
Kemper High Yield Fund
Kemper High Yield Opportunity Fund
Kemper Income and Capital Preservation Fund
Kemper Portfolios including the following two series:
Kemper U.S. Mortgage Fund
Kemper Short-Intermediate Government Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED DECEMBER 30, 1997
-------------------------
KEMPER CASH RESERVES FUNDS
(A SERIES OF KEMPER PORTFOLIOS)
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED DECEMBER 30, 1997
-------------------------
KEMPER GLOBAL AND INTERNATIONAL FUNDS
Kemper Asian Growth Fund
Kemper Europe Fund
Kemper Global Income Fund
Kemper International Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED MARCH 1, 1998
-------------------------
KEMPER EQUITY FUNDS/VALUE STYLE
Kemper-Dreman Financial Services Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED MARCH 9, 1998
-------------------------
KEMPER EQUITY FUNDS/VALUE STYLE
Kemper U.S. Growth and Income Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED JANUARY 30, 1998
-------------------------
KEMPER TAX-FREE INCOME FUNDS
Kemper National Tax-Free Income Series
comprised of the following two series:
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
Kemper State Tax-Free Income Series
comprised of the following eight series:
Kemper California Tax-Free Income Fund
Kemper Florida Tax-Free Income Fund
Kemper Michigan Tax-Free Income Fund
Kemper New Jersey Tax-Free Income Fund
Kemper New York Tax-Free Income Fund
Kemper Ohio Tax-Free Income Fund
Kemper Pennsylvania Tax-Free Income Fund
Kemper Texas Tax-Free Income Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED NOVEMBER 26, 1997
-------------------------
KEMPER ASSET ALLOCATION FUNDS
Kemper Horizon 20+ Portfolio
Kemper Horizon 10+ Portfolio
Kemper Horizon 5 Portfolio
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED NOVEMBER 21, 1997
-------------------------
KEMPER EQUITY FUNDS/VALUE STYLE
Kemper Value Series, Inc.
comprised of the following three series:
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED APRIL 1, 1998
-------------------------
KEMPER TARGET EQUITY FUND
Kemper Retirement Fund Series VII
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED NOVEMBER 1, 1997
-------------------------
<PAGE> 130
KEMPER GLOBAL AND INTERNATIONAL FUNDS
Kemper Global Blue Chip Fund
Kemper International Growth and Income Fund
Kemper Emerging Markets Income Fund
Kemper Emerging Markets Growth Fund
Kemper Latin America Fund
SUPPLEMENT TO STATEMENT OF
ADDITIONAL INFORMATION
DATED DECEMBER 31, 1997
AS REVISED JANUARY 14, 1998
The following disclosure supplements information in each Fund's Statement of
Additional Information.
PURCHASE AND REDEMPTION OF SHARES
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI"),
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced at the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees or Directors as the case may be ("Board") of the Fund and KDI each has
the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason.
April 30, 1998
KMF-1SS
2
<PAGE> 131
EXHIBIT B
KEMPER EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1998
KEMPER AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH FUND")
KEMPER BLUE CHIP FUND ("BLUE CHIP FUND")
KEMPER GROWTH FUND ("GROWTH FUND")
KEMPER QUANTITATIVE EQUITY FUND ("QUANTITATIVE FUND")
KEMPER SMALL CAPITALIZATION EQUITY FUND ("SMALL CAP FUND")
KEMPER TECHNOLOGY FUND ("TECHNOLOGY FUND")
KEMPER TOTAL RETURN FUND ("TOTAL RETURN FUND")
KEMPER VALUE PLUS GROWTH FUND ("VALUE+GROWTH FUND")
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the combined prospectus of the
Funds dated February 1, 1998. The prospectus may be obtained without charge from
the Funds.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions.................... B-1
Investment Policies and Techniques......... B-11
Portfolio Transactions..................... B-20
Investment Manager and Underwriter......... B-22
Purchase and Redemption of Shares.......... B-34
Dividends and Taxes........................ B-35
Performance................................ B-37
Officers and Trustees...................... B-60
Shareholder Rights......................... B-66
Appendix--Ratings of Fixed Income
Investments.............................. B-68
</TABLE>
The financial statements appearing in each Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund for which this Statement of Additional Information is requested accompanies
this document.
KEF-13 2/98 (LOGO) printed on recycled paper
<PAGE> 132
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of such Fund,
cannot be changed without approval of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
THE AGGRESSIVE GROWTH FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) With respect to 50% of its total assets, purchase securities of any issuer
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) if, as a result, more than 5% of the total value of the
Fund's assets would be invested in securities of that issuer, except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(2) Purchase more than 10% of any class of voting securities of any issuer,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
(3) Invest more than 25% of its total assets in a single issuer (other than
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities), except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having the same
investment objective and substantially similar investment policies as the Fund.
(4) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(5) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(6) Pledge, hypothecate, mortgage or otherwise encumber its assets except to
secure borrowings permitted by restriction number 5 above. (The collateral
arrangements with respect to options, financial futures, foreign currency
transactions and delayed delivery transactions and any margin payments in
connection therewith are not deemed to be pledges or other encumbrances.)
B-1
<PAGE> 133
(7) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(8) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities that are secured by real estate and securities of issuers that invest
or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund has
adopted the following non-fundamental restrictions, which may be changed by the
Board of Trustees without shareholder approval. The Aggressive Growth Fund may
not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of the Fund's
total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate. Any such
B-2
<PAGE> 134
purchases are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary broker's commission,
except for securities acquired as part of a merger, consolidation or acquisition
of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
(iv) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
THE BLUE CHIP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer, except that all or substantially all of the assets of
the Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as the
Fund.
(2) Purchase more than 10% of any class of voting securities of any issuer,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction number
(4) above. (The collateral arrangements with respect to options, financial
futures and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
B-3
<PAGE> 135
(7) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
(8) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including real estate limited
partnership interests), although it may invest in securities which are secured
by real estate and securities of issuers which invest or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Blue Chip
Fund may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
B-4
<PAGE> 136
(ii) Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
THE GROWTH FUND AND THE VALUE+GROWTH FUND, EACH MAY NOT, AS A FUNDAMENTAL
POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer, except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and substantially similar investment policies as the Fund.
(2) Purchase more than 10% of any class of securities of any issuer, except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. All debt securities and
all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. Water, communications,
electric and gas utilities shall each be considered a separate industry.
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(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Growth
Fund did not borrow money as permitted by investment restriction number 4 in the
latest fiscal year and neither Fund has a present intention of borrowing during
the current year. The Fund has adopted the following non-fundamental
restrictions, which may be changed by the Board of Trustees without shareholder
approval. The Growth Fund and the Value+Growth Fund, each may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
THE SMALL CAP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer, except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and substantially similar investment policies as the Fund.
(2) Purchase more than 10% of any class of securities of any issuer, except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. All debt securities and
all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in
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accordance with its objective and policies are not prohibited and the Fund may
lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. Water, communications,
electric and gas utilities shall each be considered a separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental
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restrictions, which may be changed by the Board of Trustees without shareholder
approval. The Small Cap Fund may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
THE QUANTITATIVE FUND AND THE TECHNOLOGY FUND, EACH MAY NOT, AS A FUNDAMENTAL
POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer, except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and substantially similar investment policies as the Fund.
(2) Purchase more than 10% of any class of securities of any issuer, except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. All debt securities and
all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
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(7) Invest 25% or more of its total assets in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. Water, communications,
electric and gas utilities shall each be considered a separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The
Technology Fund did not borrow money as permitted by investment restriction
number 4 in the latest fiscal year and neither Fund has a present intention of
borrowing during the current year. The Quantitative Fund and the Technology Fund
adopted the following non-fundamental restrictions, which may be changed by the
Board of Trustees without shareholder approval. These Funds may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by it, (ii) 5% of
its total assets would be invested in any one such company, and (iii) 10% of
total assets would be invested in such securities.
(iii) Invest more than 15% of its net assets in illiquid securities.
THE TOTAL RETURN FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
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of that issuer, except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and substantially similar investment policies as the Fund.
(2) Purchase more than 10% of any class of securities of any issuer, except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. All debt securities and
all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowings secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Invest 25% or more of its total assets in any one industry, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund. Water, communications,
electric and gas utilities shall each be considered a separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities, and except that all or
substantially all of the assets of the Fund may be invested in another
registered
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investment company having the same investment objective and substantially
similar investment policies as the Fund.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Total
Return Fund may not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in options transactions and may engage in
financial futures transactions in accordance with its respective investment
objectives and policies. The Blue Chip, Growth, Small Cap, Total Return and
Value+Growth Funds each may invest in put and call options but may not write
(sell) options. The Aggressive Growth, Quantitative and Technology Funds may
write (sell) covered call options and secured put options and may purchase put
and call options. Each such Fund intends to engage in such transactions if it
appears to the investment manager to be advantageous for the Fund to do so in
order to pursue its investment objective and also to hedge against the effects
of market risks but not for speculative purposes. The use of futures and
options, and possible benefits and attendant risks, are discussed below along
with information concerning other investment policies and techniques.
OPTIONS ON SECURITIES. The Aggressive Growth, Quantitative and Technology Funds
may write (sell) "covered" call options on securities as long as the Fund owns
the underlying securities subject to the option or an option to purchase the
same underlying securities, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and maintain for the
term of the option a segregated account consisting of cash or other liquid
securities ("eligible securities") to the extent required by applicable
regulation in connection with the optioned securities. The Aggressive Growth,
Quantitative and Technology Funds may write "covered" put options provided that,
as long as the Fund is obligated as a writer of a put option, the Fund will own
an option to sell the underlying securities subject to the option, having an
exercise price equal to or greater than the exercise price
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of the "covered" option, or it will deposit and maintain in a segregated account
eligible securities having a value equal to or greater than the exercise price
of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Funds may write (for
the Quantitative and Technology Funds) or purchase spread options, which are
options for which the exercise price may be a fixed dollar spread or yield
spread between the security underlying the option and another security that is
used as a bench mark. The exercise price of an option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. The buyer of a put who also owns the related security is protected
by ownership of a put option against any decline in that security's price below
the exercise price less the amount paid for the option. The ability to purchase
put options allows a Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times a Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, a Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because a Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium, plus the interest income on the eligible securities that
have been segregated. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would
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be offset in whole or in part by gain from the premium received and any interest
income earned on the eligible securities that have been segregated.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Funds may deal in over-the-counter
traded options ("OTC options"). OTC options differ from exchange traded options
in several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event a Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are
exchange traded options. Since there is no exchange, pricing is normally done by
reference to information from market makers, which information is carefully
monitored by the investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Funds understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Funds have adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Funds' portfolios. A brief description of
such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers that have been
specifically approved by the investment manager pursuant to procedures adopted
by the Fund's Board of Trustees. The investment manager believes that the
approved dealers should be able to enter into closing transactions if
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necessary and, therefore, present minimal credit risks to a Fund. The investment
manager will monitor the credit-worthiness of the approved dealers on an ongoing
basis. A Fund currently will not engage in OTC options transactions if the
amount invested by the Fund in OTC options, plus (for the Aggressive Growth,
Quantitative and Technology Funds) a "liquidity charge" related to OTC options
written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets. The "liquidity charge"
referred to above is computed as described below.
The Aggressive Growth, Quantitative and Technology Funds anticipate entering
into agreements with dealers to which the Fund sells OTC options. Under these
agreements either Fund would have the absolute right to repurchase the OTC
options from the dealer at any time at a price no greater than a price
established under the agreements (the "Repurchase Price"). The "liquidity
charge" referred to above for a specific OTC option transaction will be the
Repurchase Price related to the OTC option less the intrinsic value of the OTC
option. The intrinsic value of an OTC call option for such purposes will be the
amount by which the current market value of the underlying security exceeds the
exercise price. In the case of an OTC put option, intrinsic value will be the
amount by which the exercise price exceeds the current market value of the
underlying security. If there is no such agreement requiring a dealer to allow
either Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. The Blue Chip, Growth, Small Cap, Total Return
and Value+Growth Funds may purchase, and the Aggressive Growth, Quantitative and
Technology Funds may purchase and write, call and put options on securities
indices in an attempt to hedge against market conditions affecting the value of
securities that the Fund owns or intends to purchase, and not for speculation.
Through the writing or purchase of index options, a Fund can achieve many of the
same objectives as through the use of options on individual securities. Options
on securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to such difference between the closing price of the index and
the exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike
security options, all settlements are in cash and gain or loss depends upon
price movements in the market generally (or in a particular industry or segment
of the market), rather than upon price movements in individual securities. Price
movements in securities that the Fund owns or intends to purchase will probably
not correlate perfectly with movements in the level of an index since the prices
of such securities may be affected by somewhat different factors and, therefore,
the Fund bears the risk
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that a loss on an index option would not be completely offset by movements in
the price of such securities.
When the Aggressive Growth, Quantitative or Technology Fund writes an option on
a securities index, it will segregate, and mark-to-market, eligible securities
to the extent required by applicable regulations. In addition, where a Fund
writes a call option on a securities index at a time when the contract value
exceeds the exercise price, the Fund will segregate and mark-to-market, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess.
A Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on futures contracts and
index options involve risks similar to those risks relating to transactions in
financial futures contracts described below. Also, an option purchased by a Fund
may expire worthless, in which case the Fund would lose the premium paid
therefor.
FINANCIAL FUTURES CONTRACTS. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery without having to make or take
delivery of the underlying assets by purchasing (or selling, as the case may be)
on a commodities exchange an identical futures contract calling for delivery in
the same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying securities or
other assets. All transactions in the futures market are made, offset or
fulfilled through a clearing house associated with the exchange on which the
contracts are traded. A Fund will incur brokerage fees when it purchases or
sells contracts, and will be required to maintain margin deposits. At the time a
Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
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securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, called "variation margin," to and from the broker are made on a daily
basis as the market price of the futures contract fluctuates. The costs incurred
in connection with futures transactions could reduce a Fund's return. Futures
contracts entail risks. If the investment manager's judgment about the general
direction of markets or exchange rates is wrong, the overall performance may be
poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. A Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. A Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by a Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a forward currency exchange purchase, a Fund will
B-16
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maintain eligible securities in a segregated account. A Fund will use cover in
connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities that the
Fund holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Funds may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Funds may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, a Fund may be able to achieve many of the same objectives as through
forward foreign currency exchange contracts more effectively and possibly at a
lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
B-17
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days ("term") from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. The investment manager believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that to do so is in the best interests of a Fund. A Fund will not
speculate in foreign currency exchange.
If a Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. A
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. A Fund segregates eligible securities to the
extent required by applicable regulation in connection with forward foreign
currency exchange contracts entered into for the purchase of a foreign currency.
A Fund generally does not enter into a forward contract with a term longer than
one year.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities
B-18
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and loss of income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. No Fund currently intends to invest more than 5% of
its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Aggressive Growth and Blue Chip Funds may make
short sales against-the-box for the purpose of, but not limited to, deferring
realization of loss when deemed advantageous for federal income tax purposes. A
short sale "against-the-box" is a short sale in which a Fund owns at least an
equal amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities sold short. A
Fund may engage in such short sales only to the extent that not more than 10% of
the Fund's total assets (determined at the time of the short sale) is held as
collateral for such sales. Each Fund does not currently intend, however, to
engage in such short sales to the extent that more than 5% of its net assets
will be held as collateral therefor during the current year.
OTHER CONSIDERATIONS--HIGH YIELD (HIGH RISK) BONDS. As reflected in the
prospectus, the Total Return Fund may invest a portion of its assets in fixed
income securities that are in the lower rating categories of recognized rating
agencies or are non-rated. These lower rated or non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also tend to be more sensitive to economic conditions
than are higher rated securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, regarding lower rated bonds may
depress the prices for such securities. These and other factors adversely
affecting the market value of high yield securities will adversely affect the
Fund's net asset value. Although some risk is inherent in all securities
ownership, holders of fixed income securities have a claim on the assets of the
issuer prior to the holders of common stock. Therefore, an investment in fixed
income securities generally entails less risk than an investment in common stock
of the same issuer.
High yield securities frequently are issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or a corporate takeover. Companies that issue such high yielding
securities often are highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with acquiring
the securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or recession, highly
leveraged issuers of high yield securities may experience financial
B-19
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stress. During such periods, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability to service its
debt obligations may also be adversely affected by specific corporate
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss from
default by the issuer is significantly greater for the holders of high yielding
securities because such securities are generally unsecured and are often
subordinated to other creditors of the issuer.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently with similar maturities and
credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.
Additional information concerning high yield securities appears under
"Appendix--Ratings of Fixed Income Investments."
PORTFOLIO TRANSACTIONS
BROKERAGE
Allocation of brokerage is supervised by Scudder Kemper.
The primary objective of Scudder Kemper in placing orders for the purchase and
sale of securities for a Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. Scudder Kemper seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. Scudder
Kemper reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
Each Fund's purchases and sales of fixed-income securities are generally placed
by Scudder Kemper with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
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When it can be done consistently with the policy of obtaining the most favorable
net results, it is Scudder Kemper's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Scudder Kemper is authorized when placing portfolio transactions for a Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction solely on account of the receipt of research,
market or statistical information. In effecting transactions in over-
the-counter securities, orders are placed with the principal market makers for
the security being traded unless, after exercising care, it appears that more
favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, Scudder Kemper may give consideration to those firms that have sold
or are selling shares of a Fund managed by Scudder Kemper.
To the maximum extent feasible, it is expected that Scudder Kemper will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder
Kemper; SIS will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to Scudder Kemper, it is the opinion
of Scudder Kemper that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by Scudder
Kemper's staff. Such information may be useful to Scudder Kemper in providing
services to clients other than the Funds and not all such information is used by
Scudder Kemper in connection with the Funds. Conversely, such information
provided to Scudder Kemper by broker/dealers through whom other clients of
Scudder Kemper effect securities transactions may be useful to Scudder Kemper in
providing services to a Fund.
The Trustees for the Funds review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by a Fund on portfolio transactions is legally permissible and
advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
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Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal years and, for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN
FUND FISCAL 1997 FISCAL 1997 FISCAL 1996 FISCAL 1995
- ---- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Aggressive*.......... $ 27,000 100% $ N.A. $ N.A.
Blue Chip............ $ 2,664,000 94% $1,661,000 $ 506,000
Growth............... $11,676,000 83% $9,535,000 $6,470,000
Quantitative......... $ 21,000 92% $ 9,000 N.A.
Small Cap............ $ 6,618,000 97% $6,362,000 $5,975,000
Technology........... $ 3,329,000 92% $4,438,000 $3,504,000
Total Return......... $ 7,170,000 76% $6,335,000 $8,309,000
Value+Growth......... $ 142,000 85% $ 66,000 $ 6,000
</TABLE>
- ---------------
* For the period December 31, 1996 to September 30, 1997.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345
Park Avenue, New York, New York, is each Fund's investment manager. Scudder
Kemper is approximately 70% owned by Zurich 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. The balance of Scudder Kemper is owned by
Scudder Kemper's officers and employees. Pursuant to investment management
agreements, Scudder Kemper acts as each Fund's investment adviser, manages its
investments, administers its business affairs, furnishes office facilities and
equipment, provides clerical and administrative services, and permits any of its
officers or employees to serve without compensation as trustees or officers of a
Fund if elected to such positions. Each investment management agreement provides
that each Fund pays the charges and expenses of its operations, including the
fees and expenses of the trustees (except those who are affiliated with officers
or employees of Scudder Kemper), independent auditors, counsel, custodian and
transfer agent and the cost of share certificates, reports and notices to
shareholders, brokerage commissions or transaction costs, costs of calculating
net asset value and maintaining all accounting records related thereto, taxes
and membership dues. Each Fund bears the expenses of registration of its shares
with the Securities and Exchange Commission, while Kemper Distributors, Inc.
("KDI"), as principal underwriter, pays the cost of qualifying and maintaining
the qualification of each Fund's shares for sale under the securities laws of
the various states.
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<PAGE> 154
The investment management agreements provide that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under each agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually (a) by a majority
of the trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. Each Fund's investment
management agreement may be terminated at any time upon 60 days notice by either
party, or by a majority vote of the outstanding shares of the Fund, and will
terminate automatically upon assignment. If additional Fund's become subject to
an investment management agreement, the provisions concerning continuation,
amendment and termination shall be on a Fund by Fund basis. Additional Funds may
be subject to a different agreement.
Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc.
("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global
investment organization by combining Scudder with Zurich Kemper Investments,
Inc. ("ZKI"), a former subsidiary of Zurich and the former investment manager to
the Funds and Scudder changed its name to Scudder Kemper Investments, Inc. As a
result of the transaction, Zurich owns approximately 70% of Scudder Kemper, with
the balance owned by Scudder Kemper's officers and employees.
Because the transaction between Scudder and Zurich resulted in the assignment of
the Funds' investment management agreements with ZKI, the agreements were deemed
to be automatically terminated upon consummation of the transaction. In
anticipation of the transaction, however, new investment management agreements
between the Funds and Scudder Kemper were approved by the Funds' Board of
Trustees and shareholders. The new investment management agreements were
effective as of December 31, 1997 and will be in effect for an initial term
ending on the same date as would the previous investment management agreement
with ZKI.
The Funds' investment management agreements are on substantially similar terms
as the investment management agreements terminated by the transaction, except
that Scudder Kemper is the new investment adviser to the Funds.
The current investment management fee rates paid by the Funds are in the
prospectus, see "Investment Manager and Underwriter." The investment
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<PAGE> 155
management fees paid by each Fund for its last three fiscal years are shown in
the table below.
<TABLE>
<CAPTION>
FUND FISCAL 1997 FISCAL 1996 FISCAL 1995
---- ----------- ----------- -----------
<S> <C> <C> <C>
Aggressive+........... $ 37,000(1) -- --
Blue Chip............. $ 2,018,000 1,198,000 903,000
Growth................ $14,576,000 13,994,000 12,349,000
Quantitative.......... $ 46,000 11,000(2) N.A.
Small Cap............. $ 3,193,000(3) 4,418,000(4) 3,273,000(5)
Technology............ $ 6,532,000 5,582,000 4,542,000
Total Return.......... $17,084,000 15,825,000 15,147,000
Value+Growth.......... $ 474,000 131,000* 1,000(6)*
</TABLE>
- ---------------
+ For the period December 31, 1996 (commencement of operations) to September
30, 1997.
* Amounts shown are after expense waiver.
(1) Fee was increased $1,000 from $36,000 base fee.
(2) For the period February 15, 1996 to November 30, 1996.
(3) Fee was decreased $2,617,000 from $5,810,000 base fee.
(4) Fee was decreased $670,000 from $5,088,000 base fee.
(5) Fee was decreased $766,000 from $4,039,000 base fee.
(6) For the period October 16, 1995 to November 30, 1995.
The Small Cap Fund pays a base annual investment management fee, payable
monthly, at the rate of .65 of 1% of the average daily net assets of the Fund.
This base fee is subject to upward or downward adjustment on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The Small
Cap Fund will pay an additional monthly fee at an annual rate of .05% of such
average daily net assets for each percentage point (fractions to be prorated) by
which the performance of the Class A shares of the Fund exceeds that of the
Index for the immediately preceding twelve months; provided that such additional
monthly fee shall not exceed 1/12 of .30% of the average daily net assets.
Conversely, the compensation payable by the Small Cap Fund will be reduced by an
annual rate of .05% of such average daily net assets for each percentage point
(fractions to be prorated) by which the performance of the Class A shares of the
Fund falls below that of the Index, provided that such reduction in the monthly
fee shall not exceed 1/12 of .30% of the average net assets. The total fee on an
annual basis can range from .35% to .95% of average daily net assets. The Small
Cap Fund's investment performance during any twelve month period is measured by
the percentage difference between (a) the opening net asset value of one Class A
share of the Fund and (b) the sum of the closing net asset value of one Class A
share of the Fund plus the value of any income and capital gain dividends on
such share during the period treated as if reinvested in Class A shares of the
Fund at the time of distribution. The performance of the Index is measured by
the percentage change in the Index between the beginning and the end of the
twelve month period with cash distributions on the securities which comprise the
Index being treated as reinvested in the Index at the end of each month
following the payment of the dividend. Each monthly calculation of the incentive
portion of
B-24
<PAGE> 156
the fee may be illustrated as follows: if over the preceding twelve month period
the Small Cap Fund's adjusted net asset value applicable to one Class A share
went from $10.00 to $11.00 (10% appreciation), and the Index, after adjustment,
went from 100 to 104 (or only 4%), the entire incentive compensation would have
been earned by Scudder Kemper. On the other hand, if the Index rose from 100 to
110 (10%), no incentive fee would have been payable. A rise in the Index from
100 to 116 (16%) would have resulted in the minimum monthly fee of 1/12 of .35%.
Since the computation is not cumulative from year to year, an additional
management fee may be payable with respect to a particular year, although the
Small Cap Fund's performance over some longer period of time may be less
favorable than that of the Index. Conversely, a lower management fee may be
payable in a year in which the performance of the Fund's Class A shares' is less
favorable than that of the Index, although the performance of the Fund's Class A
shares over a longer period of time might be better than that of the Index.
The Aggressive Growth Fund pays a base annual investment management fee, payable
monthly, at the rate of .65 of 1% of the average daily net assets of the Fund.
This base fee is subject to upward or downward adjustment on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The
Aggressive Growth Fund will pay an additional monthly fee at an annual rate of
.02% of such average daily net assets for each percentage point (fractions to be
prorated) by which the performance of the Class A shares of the Fund exceeds
that of the Index for the immediately preceding twelve months; provided that
such additional monthly fee shall not exceed 1/12 of .20% of the average daily
net assets. Conversely, the compensation payable by the Aggressive Growth Fund
will be reduced by an annual rate of .02% of such average daily net assets for
each percentage point (fractions to be prorated) by which the performance of the
Class A shares of the Fund falls below that of the Index, provided that such
reduction in the monthly fee shall not exceed 1/12 of .20% of the average net
assets. The total fee on an annual basis can range from .45% to .85% of average
daily net assets. The Aggressive Growth Fund's investment performance during any
twelve month period is measured by the percentage difference between (a) the
opening net asset value of one Class A share of the Fund and (b) the sum of the
closing net asset value of one Class A share of the Fund plus the value of any
income and capital gain dividends on such share during the period treated as if
reinvested in Class A shares of the Fund at the time of distribution. The
performance of the Index is measured by the percentage change in the Index
between the beginning and the end of the twelve month period with cash
distributions on the securities which comprise the Index being treated as
reinvested in the Index at the end of each month following the payment of the
dividend. Each monthly calculation of the incentive portion of the fee may be
illustrated as follows: if over the preceding twelve month period the Aggressive
Growth Fund's adjusted net asset value applicable to one Class A share went from
$10.00 to $11.50 (15% appreciation), and the Index, after adjustment, went from
100 to 104 (or only 4%), the entire incentive compensation would have been
earned by Scudder
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<PAGE> 157
Kemper. On the other hand, if the Index rose from 100 to 115 (15%), no incentive
fee would have been payable. A rise in the Index from 100 to 125 (25%) would
have resulted in the minimum monthly fee of 1/12 of .45%. Since the computation
is not cumulative from year to year, an additional management fee may be payable
with respect to a particular year, although the Aggressive Growth Fund's
performance over some longer period of time may be less favorable than that of
the Index. Conversely, a lower management fee may be payable in a year in which
the performance of the Fund's Class A shares is less favorable than that of the
Index, although the performance of the Fund's Class A shares over a longer
period of time might be better than that of the Index.
FUND ACCOUNTING AGENT. SFAC, a subsidiary of Scudder Kemper, is responsible for
determining the daily net asset value per share of the Funds and maintaining all
accounting records related thereto. Currently, SFAC receives no fee for its
services to the Funds; however, subject to Board approval, some time in the
future, SFAC may seek payment for its services under this agreement.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), a wholly owned subsidiary of Scudder Kemper, is the principal
underwriter and distributor for the shares of each Fund and acts as agent of
each Fund in the continuous offering of its shares. KDI bears all its expenses
of providing services pursuant to the distribution agreements, including the
payment of any commissions. Each Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI, as principal underwriter, pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by KDI upon 60 days' notice. Termination by a Fund with respect to a
class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
Investment Company Act of 1940. The agreement may not be amended for a class to
increase the fee to be paid by a Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
agreement. The provisions concerning the continuation, amendment and termination
of the distribution agreement are on a Fund by Fund basis and for each Fund on a
class by class basis.
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<PAGE> 158
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
fiscal years noted.
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
COMMISSIONS RETAINED UNDERWRITER PAID TO KEMPER
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS AFFILIATED FIRMS
---- ----------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Aggressive........................ 1997+ $ 7,000 111,000 5,000
1996 N.A. N.A. N.A.
1995 N.A. N.A. N.A.
Blue Chip......................... 1997 $124,000 1,101,000 7,000
1996 $ 72,000 424,000 11,000
1995 $ 33,000 225,000 29,000
Growth............................ 1997 $296,000 1,523,000 9,000
1996 $327,000 2,075,000 57,000
1995 $266,000 2,130,000 326,000
Quantitative...................... 1997 $ 2,000 18,000 0
1996* $ 1,000 5,000 0
1995 N.A. N.A. N.A.
Small Cap......................... 1997 $104,000 705,000 0
1996 $130,000 849,000 16,000
1995 $105,000 798,000 133,000
Technology........................ 1997 $181,000 853,000 7,000
1996 $198,000 869,000 37,000
1995 $116,000 840,000 218,000
Total Return...................... 1997 $191,000 1,591,000 0
1996 $225,000 1,697,000 79,000
1995 $206,000 1,642,000 218,000
Value+Growth...................... 1997 $ 40,000 538,000 0
1996 $ 33,000 238,000 15,000
1995** $ 0 48,000 3,000
</TABLE>
- ---------------
+ For the period December 31, 1996 (commencement of operations) to September
30, 1997.
* For the period February 15, 1996 to November 30, 1996.
** For the period October 16, 1995 to November 30, 1995.
B-27
<PAGE> 159
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides for
fees charged to Class B and Class C shares that are used by KDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Funds and of KDI in connection with the Rule 12b-1
Plans for the Class B and Class C Shares are set forth below. A portion of the
marketing, sales and operating expenses shown below could be considered overhead
expense.
<TABLE>
<CAPTION>
DISTRIBUTION CONTINGENT TOTAL
FEES PAID DEFERRED COMMISSIONS COMMISSIONS
FUND CLASS B FISCAL BY FUND TO SALES CHARGES PAID BY UNDERWRITER PAID BY UNDERWRITER
SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS TO AFFILIATED FIRMS
------------ ------ ------------ -------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Aggressive................ 1997+ $ 13,000 11,000 122,000 0
1996 N.A. N.A. N.A. N.A.
1995 N.A. N.A. N.A. N.A.
Blue Chip................. 1997 $ 659,000 128,000 1,885,000 0
1996 $ 233,000 41,000 521,000 3,000
1995 $ 59,000 29,000 183,000 25,000
Growth.................... 1997 $6,426,000 1,183,000 3,193,000 0
1996 $6,149,000 1,494,000 3,522,000 53,000
1995 $5,249,000 2,368,000 3,296,000 335,000
Quantitative.............. 1997 $ 13,000 0 40,000 0
1996* $ 3,000 0 4,000 0
1995 N.A. N.A. N.A. N.A.
Small Cap................. 1997 $1,930,000 417,000 1,308,000 0
1996 $1,743,000 389,000 1,370,000 18,000
1995 $1,341,000 518,000 1,188,000 142,000
Technology................ 1997 $ 698,000 179,000 1,272,000 0
1996 $ 413,000 102,000 974,000 28,000
1995 $ 168,000 56,000 654,000 151,000
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MISC.
FUND CLASS B AND PROSPECTUS AND SALES OPERATING INTEREST
SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSES
------------ ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Aggressive................ 12,000 1,000 3,000 1,000 4,000
Blue Chip................. 189,000 13,000 530,000 97,000 238,000
117,000 10,000 232,000 76,000 85,000
18,000 6,000 77,000 26,000 22,000
Growth.................... 563,000 39,000 1,424,000 199,000 48,000
1,020,000 88,000 2,049,000 284,000 188,000
322,000 59,000 1,872,000 239,000 277,000
Quantitative.............. 3,000 0 9,000 22,000 5,000
7,000 1,000 17,000 4,000 1,000
N.A. N.A. N.A. N.A. N.A.
Small Cap................. 222,000 15,000 564,000 97,000 426,000
384,000 34,000 781,000 125,000 380,000
117,000 22,000 666,000 98,000 317,000
Technology................ 162,000 11,000 442,000 77,000 295,000
309,000 28,000 572,000 121,000 191,000
53,000 14,000 239,000 55,000 54,000
</TABLE>
B-28
<PAGE> 160
<TABLE>
<CAPTION>
DISTRIBUTION CONTINGENT TOTAL
FEES PAID DEFERRED COMMISSIONS COMMISSIONS
FUND CLASS B FISCAL BY FUND TO SALES CHARGES PAID BY UNDERWRITER PAID BY UNDERWRITER
SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS TO AFFILIATED FIRMS
------------ ------ ------------ -------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Total Return.............. 1997 $8,705,000 1,382,000 3,769,000 0
1996 $8,464,000 2,089,000 3,572,000 64,000
1995 $8,303,000 3,318,000 3,751,000 371,000
Value+.................... 1997 $ 195,000(a) 28,000 656,000 0
Growth 1996 $ 65,000 4,000 320,000 15,000
1995** $ 1,000 0 75,000 2,000
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MISC.
FUND CLASS B AND PROSPECTUS AND SALES OPERATING INTEREST
SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSES
------------ ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Total Return.............. 517,000 36,000 1,391,000 193,000 44,000
1,100,000 100,000 2,139,000 344,000 438,000
416,000 62,000 2,277,000 277,000 809,000
Value+.................... 65,000 5,000 184,000 30,000 104,000
Growth 88,000 7,000 160,000 41,000 40,000
2,000 0 9,000 3,000 1,000
</TABLE>
- ---------------
+ For the period December 31, 1996 (commencement of operations) to September
30, 1997.
* For the period February 15, 1996 to November 30, 1996.
** For the period October 16, 1995 to November 30, 1995.
(a) Amounts shown after expense waiver.
B-29
<PAGE> 161
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION CONTINGENT DISTRIBUTION FEES PAID
FEES PAID DEFERRED FEES PAID BY UNDERWRITER
BY FUND SALES CHARGES BY UNDERWRITER TO AFFILIATED
FUND CLASS C SHARES FISCAL YEAR TO UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
- ------------------- ----------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Aggressive.......... 1997+ $ 6,000 5,000 16,000 0
1996 N.A. N.A. N.A. N.A.
1995 N.A. N.A. N.A. N.A.
Blue Chip........... 1997 $ 49,000 3,000 72,000 0
1996 $ 12,000 0 18,000 0
1995 $ 5,000 N.A. 5,000 0
Growth.............. 1997 $110,000 1,000 123,000 0
1996 $ 57,000 0 73,000 0
1995 $ 23,000 N.A. 22,000 6,000
Quantitative........ 1997 $ 8,000 0 2,000 0
1996* $ 3,000 0 0 0
1995 N.A. N.A. N.A. N.A.
Small Cap........... 1997 $ 62,000 2,000 63,000 0
1996 $ 35,000 0 42,000 0
1995 $ 13,000 N.A. 13,000 4,000
Technology.......... 1997 $ 51,000 3,000 66,000 0
1996 $ 21,000 1,000 32,000 0
1995 $ 5,000 N.A. 4,000 1,000
Total Return........ 1997 $109,000 2,000 123,000 0
1996 $ 60,000 0 69,000 0
1995 $ 26,000 N.A. 25,000 5,000
Value+Growth........ 1997 $ 8,000(a) 1,000 20,000 0
1996 $ 2,000 0 7,000 0
1995** $ 0 N.A. 0 0
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MISC.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS C SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSES
- ------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Aggressive.......... 7,000 1,000 20,000 0 1,000
N.A. N.A. N.A. N.A. N.A.
N.A. N.A. N.A. N.A. N.A.
Blue Chip........... 26,000 2,000 52,000 18,000 12,000
14,000 1,000 28,000 1,000 5,000
3,000 1,000 13,000 8,000 2,000
Growth.............. 44,000 3,000 110,000 8,000 36,000
48,000 4,000 89,000 8,000 18,000
12,000 2,000 70,000 15,000 7,000
Quantitative........ 0 0 0 9,000 2,000
7,000 0 15,000 6,000 1,000
N.A. N.A. N.A. N.A. N.A.
Small Cap........... 21,000 1,000 53,000 9,000 21,000
30,000 3,000 60,000 3,000 11,000
6,000 1,000 36,000 14,000 4,000
Technology.......... 24,000 2,000 66,000 2,000 19,000
34,000 3,000 67,000 2,000 8,000
4,000 1,000 19,000 10,000 2,000
Total Return........ 35,000 2,000 94,000 2,000 36,000
49,000 4,000 97,000 5,000 20,000
13,000 2,000 72,000 15,000 9,000
Value+Growth........ 7,000 1,000 20,000 2,000 7,000
13,000 1,000 23,000 8,000 3,000
1,000 0 1,000 1,000 0
</TABLE>
- ---------------
+ For the period December 31, 1996 (commencement of operations) to September
30, 1997.
* For the period February 15, 1996 to November 30, 1996.
** For the period October 16, 1995 to November 30, 1995.
(a) Amount shown after expense waiver.
B-30
<PAGE> 162
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to .25% of average daily net assets of Class A, B and C shares of each
Fund.
KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are shareholders of a Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other services as may be agreed upon from
time to time and permitted by applicable statute, rule or regulation. For Class
A shares, KDI pays each firm a service fee, normally payable quarterly, at an
annual rate of up to .25% of the net assets in Fund accounts that it maintains
and services attributable to Class A shares commencing with the month after
investment. With respect to Class B and Class C shares, KDI currently advances
to firms the first-year service fee at a rate of up to .25% of the purchase
price of such shares. For periods after the first year, KDI currently intends to
pay firms a service fee at an annual rate of up to .25% (calculated monthly and
normally paid quarterly) of the net assets attributable to Class B and Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. Firms to which service fees may be paid include
broker-dealers affiliated with KDI.
B-31
<PAGE> 163
The following information concerns the administrative services fee paid by each
Fund.
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES
PAID BY FUND SERVICE FEES SERVICE FEES
-------------------------------- PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
FUND FISCAL YEAR CLASS A CLASS B CLASS C TO FIRMS TO AFFILIATED FIRMS
---- ----------- ------- ------- ------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive.................... 1997+ $ 7,000 4,000 2,000 24,000 0
1996 N.A. N.A. N.A. N.A. N.A.
1995 N.A. N.A. N.A. N.A. N.A.
Blue Chip..................... 1997 $ 598,000 220,000 16,000 886,000 0
1996 $ 415,000 78,000 4,000 512,000 15,000
1995 $ 361,000 19,000 2,000 386,000 69,000
Growth........................ 1997 $4,000,000 2,093,000 36,000 6,149,000 41,000
1996 $3,929,000 2,016,000 19,000 5,983,000 138,000
1995 $3,633,000 1,721,000 8,000 5,301,000 693,000
Quantitative.................. 1997 $ 3,000 0 1,000 7,000 0
1996** $ 1,000 1,000 1,000 1,000 0
1995 N.A. N.A. N.A. N.A. N.A.
Small Cap..................... 1997 $1,376,000 632,000 21,000 2,027,000 7,000
1996 $1,315,000 580,000 12,000 1,918,000 34,000
1995 $1,141,000 442,000 4,000 1,579,000 334,000
Technology.................... 1997 $1,682,000 228,000 17,000 1,955,000 0
1996 $1,460,000 138,000 7,000 1,607,000 15,000
1995 $1,187,000 56,000 2,000 1,269,000 116,000
Total Return.................. 1997 $4,683,000 2,813,000 36,000 7,603,000 22,000
1996 $4,252,000 2,772,000 20,000 7,049,000 194,000
1995 $4,047,000 2,710,000 9,000 6,685,000 1,010,000
Value+Growth.................. 1997* $ 71,000 73,000 4,000 169,000 0
1996 $ 22,000 25,000 2,000 57,000 2,000
1995*** $ 0 0 0 5,000 0
</TABLE>
- ---------------
+ For the period December 31, 1996 (commencement of operations) to September
30, 1997.
* Amounts shown after expense waiver.
** For the period February 15, 1996 to November 30, 1996.
*** For the period October 16, 1995 to November 30, 1995.
B-32
<PAGE> 164
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fee that it receives
from a Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of a Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. The Board of Trustees of a Fund,
in its discretion, may approve basing the fee to KDI on all Fund assets in the
future.
Certain trustees or officers of a Fund are also directors or officers of Scudder
Kemper or KDI as indicated under "Officers and Trustees."
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 each Fund maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of each Fund held outside of the United States. They attend
to the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by each Fund. IFTC is also each Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of Scudder Kemper, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC, annual account fees of $6 per account plus account set
up, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B only) and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of the
Fund. The following shows for each Fund's 1997 fiscal year the shareholder
service fees IFTC remitted to KSvC.
<TABLE>
<CAPTION>
FEES IFTC
PAID TO KSVC
FUND ------------
<S> <C>
Aggressive*............................................ $ 13,000
Blue Chip.............................................. $ 959,000
Growth................................................. $7,398,000
Quantitative........................................... $ 10,000
Small Cap.............................................. $2,814,000
Technology............................................. $1,091,000
Total Return........................................... $7,212,000
Value+Growth........................................... $ 236,000
</TABLE>
- ---------------
* For the period December 31, 1996 (commencement of operations) to September 30,
1997.
B-33
<PAGE> 165
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Funds.
PURCHASE AND REDEMPTION OF SHARES
As described in the Funds' prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares, an initial sales charge. The minimum initial investment is $1,000 and
the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time. See the prospectus for certain exceptions to these
minimums. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until the Fund determines that it has received payment of the proceeds of
the check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares, by certain classes of persons or
through certain types of transactions as described in the prospectus, are
provided because of anticipated economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that
B-34
<PAGE> 166
(a) the assessment of the distribution services fee with respect to Class B
shares and not Class A shares does not result in the Fund's dividends
constituting "preferential dividends" under the Internal Revenue Code, and (b)
that the conversion of Class B shares to Class A shares does not constitute a
taxable event under the Internal Revenue Code. The conversion of Class B shares
to Class A shares may be suspended if such assurance is not available. In that
event, no further conversions of Class B shares would occur, and shares might
continue to be subject to the distribution services fee for an indefinite period
that may extend beyond the proposed conversion date as described in the
prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Quantitative, Small Cap, Technology
and Value+Growth Funds; semi-annually for the Blue Chip Fund; and quarterly for
the Total Return Fund. Each Fund distributes any net realized short-term and
long-term capital gains at least annually. The quarterly distribution to
shareholders of the Total Return Fund may include short-term capital gains.
A Fund may at any time vary its foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, a Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund paying such dividends unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Kemper Funds as described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options and futures held by the Fund at
B-35
<PAGE> 167
the end of the fiscal year. Under these provisions, 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts on foreign currency are
marked-to-market, the gain or loss is generally ordinary under Section 988 of
the Code. In addition, the straddle rules of the Code would require deferral of
certain losses realized on positions of a straddle to the extent that the Fund
had unrealized gains in offsetting positions at year end.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if a Fund sold a foreign bond and part of the gain or
loss on the sale was attributable to an increase or decrease in the value of a
foreign currency, then the currency gain or loss may be treated as ordinary
income or loss. If such transactions result in greater net ordinary income, the
dividends paid by the Fund will be increased; if the result of such transactions
is lower net ordinary income, a portion of dividends paid could be classified as
a return of capital.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. Each Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund or other Kemper Mutual Fund listed in the
prospectus under "Special Features--Class A Shares--Combined Purchases" (other
than shares of Kemper Cash Reserves Fund not acquired by exchange from another
Kemper Mutual Fund) may reinvest the amount redeemed at net asset value at the
time of the reinvestment in shares of any Fund or in shares of a Kemper Mutual
Fund within six months of the redemption as described in the prospectus under
"Redemption or Repurchase of Shares--Reinvestment Privilege." If redeemed shares
were purchased after October 3, 1989 and were held less than 91 days, then the
lesser of (a) the sales charge waived on the reinvested shares, or (b) the sales
charge incurred on the redeemed shares, is included in the basis of the
reinvested shares and is not included in the basis of the redeemed shares. If a
shareholder realized a loss on
B-36
<PAGE> 168
the redemption or exchange of a Fund's shares and reinvests in shares of the
same Fund 30 days before or after the redemption or exchange, the transactions
may be subject to the wash sale rules resulting in a postponement of the
recognition of such loss for federal income tax purposes. An exchange of a
Fund's shares for shares of another fund is treated as a redemption and
reinvestment for federal income tax purposes upon which gain or loss may be
recognized.
A Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These various measures of performance are described
below. Performance information will be computed separately for each class.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B or Class C shares includes the effect of the
applicable contingent deferred sales charge that may be imposed at the end of
the period. The redeemable value is then divided by the initial investment, and
this quotient is taken to the Nth root (N representing the number of years in
the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated
without deducting the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements and prospectus. Total return performance for
a specific period is calculated by first taking an investment (assumed below to
be $10,000) ("initial investment") in a Fund's shares on the first day of the
period, either adjusting or not adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "ending value" of that investment
at the end of the period. The total return percentage is then
B-37
<PAGE> 169
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. The ending value in the case of Class B and Class C shares may or
may not include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for Class A shares or the contingent deferred sales charge for Class B
and Class C shares would be reduced if such charge were included. Total return
figures for Class A shares for various periods are set forth in the tables
below.
A Fund's performance figures are based upon historical results and are not
representative of future performance. Each Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage thereafter
and becomes zero after six years. Redemption of Class C shares may be subject to
a 1% contingent deferred sales charge in the first year following purchase.
Returns and net asset value will fluctuate. Factors affecting each Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce the returns described in this section. Shares of each Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.
The figures below show performance information for various periods. Comparative
information for certain indices is also included. Please note the differences
and similarities between the investments which a Fund may purchase and the
investments measured by the applicable indices. The net asset values and returns
of each class of shares of the Funds will also fluctuate. No adjustment has been
made for taxes payable on dividends. The periods indicated were ones of
fluctuating securities prices and interest rates.
B-38
<PAGE> 170
AGGRESSIVE GROWTH FUND -- SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $12,500 $0 $0 $12,500 25.0% $13,263 32.6%
CLASS B SHARES
Life of Fund(+) $13,179 $0 $0 $12,779 27.8% $13,179 31.8%
CLASS C SHARES
Life of Fund(+) $13,189 $0 $0 $13,089 30.9% $13,189 31.9%
<CAPTION>
Dow Russell U.S.
TOTAL Jones Standard Consumer 3000(R) Lipper Treasury
RETURN Industrial & Poor's Price Growth Growth Bill
TABLE Average(3) 500(4) Index(5) Index(13) Fund(9) Index(8)
------ ---------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 24.9% 29.6% 1.6% 28.8% 27.2% 2.6%
CLASS B SHARES
Life of Fund(+) 24.9% 29.6% 1.6% 28.8% 27.2% 2.6%
CLASS C SHARES
Life of Fund(+) 24.9% 29.6% 1.6% 28.8% 27.2% 2.6%
</TABLE>
<TABLE>
<CAPTION>
Russell
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 3000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(13)
-------------- ------- ------- ------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 34.7% 38.7% 43.2% 34.6% 41.3% 2.2% 40.1%
<CAPTION>
U.S.
AVERAGE ANNUAL Lipper Treasury
TOTAL RETURN Growth Bill
TABLE Fund(9) Index(8)
-------------- ------- --------
<S> <C> <C>
Life of Fund(+) 37.9% 3.4%
</TABLE>
- ---------------
(+) Since December 31, 1996 for Class A, B and C shares.
B-39
<PAGE> 171
BLUE CHIP FUND -- OCTOBER 31, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage
TOTAL $10,000 Capital Gain Dividends Ending Percentage Value Increase
RETURN Investment Dividends Reinvested Value Increase (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (adjusted)(1) (adjusted)(1) (1) (1)
------ ---------- ------------ ---------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $18,513 $4,905 $9,387 $32,805 228.1% $34,810 248.1%
Five Years 13,096 2,336 4,287 19,719 97.2 20,928 109.3
One Year 9,719 881 1,346 11,946 19.5 12,678 26.8
Year to Date 11,247 0 52 11,299 13.0 11,985 19.9
CLASS B SHARES
Life of Fund(++) $14,317 $2,000 $3,008 $19,125 91.3% $19,325 93.3%
One Year 10,304 934 1,324 12,262 22.6 12,562 25.6
Year to Date 11,898 0 7 11,505 15.1 11,905 19.1
CLASS C SHARES
Life of Fund(++) $14,382 $2,002 $3,036 $ * *% $19,420 94.2%
One Year 10,315 931 1,325 * * 12,571 25.7
Year to Date 11,897 0 10 11,807 18.1 11,907 19.1
<CAPTION>
Dow Russell Lipper U.S.
TOTAL Jones Standard Consumer 1000(R) Growth Treasury
RETURN Industrial & Poor's Price Growth and Income Bill
TABLE Average(3) 500(4) Index(5) Index(6) Fund(7) Index(8)
------ ---------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 451.5% 432.4% 40.0% 439.0% 351.1% 72.6%
Five Years 161.4 147.1 14.0 132.8 130.4 25.8
One Year 25.8 32.1 2.1 30.5 28.0 5.2
Year to Date 17.2 25.4 1.9 23.8 21.5 2.6
CLASS B SHARES
Life of Fund(++) 114.6% 116.9% 9.6% 120.2% 92.9% 19.9%
One Year 25.8 32.1 2.1 30.5 28.0 5.2
Year to Date 17.2 25.4 1.9 23.8 21.5 2.6
CLASS C SHARES
Life of Fund(++) 114.6% 116.9% 9.6% 120.2% 92.9% 19.9%
One Year 25.8 32.1 2.1 30.5 28.0 5.2
Year to Date 17.2 25.4 1.9 23.8 21.5 2.6
</TABLE>
<TABLE>
<CAPTION>
Russell
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
-------------- ------- ------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.7% *% *% 18.7% 18.3% 3.5% 18.5%
Life of Fund(++) * 20.9 21.4 25.0 25.4 2.7 26.0
Five Years 14.5 * * 21.2 19.8 2.7 18.4
One Year 19.5 22.6 25.7 25.8 32.1 2.1 30.5
<CAPTION>
Lipper
Growth U.S.
AVERAGE ANNUAL and Treasury
TOTAL RETURN Income Bill
TABLE Fund(7) Index(8)
-------------- ------- --------
<S> <C> <C>
Life of Fund(+) 16.4% 5.7%
Life of Fund(++) 21.2 5.4
Five Years 18.2 4.7
One Year 28.0 5.2
</TABLE>
- ---------------
(+) Since November 23, 1987 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-40
<PAGE> 172
GROWTH FUND -- SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ---------- ---------- ---------- ---------- ------------ ------------ ----------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) $28,916 $291,840 $134,747 $455,503 4,455.0% $483,520 4,735.2% 3,030.1%
Ten Years 10,618 13,544 6,975 31,137 211.4 33,042 230.4 316.4
Five Years 11,138 5,109 1,921 18,168 81.7 19,278 92.8 175.5
One Year 8,472 1,936 899 11,307 13.1 11,997 20.0 37.7
Year to Date 11,170 0 0 11,170 11.7 11,854 18.5 24.9
CLASS B SHARES
Life of Fund(++) $11,321 $ 4,195 $ 1,742 $ 17,058 70.6% $ 17,258 72.6% 128.7%
One Year 8,817 2,083 968 11,604 16.0 11,868 18.7 37.7
Year to Date 11,761 0 0 11,361 13.6 11,761 17.6 24.9
CLASS C SHARES
Life of Fund(++) $11,390 $ 4,209 $ 1,747 $ * *% $ 17,346 73.5% 128.7%
One Year 8,838 2,082 967 * * 11,887 18.9 37.7
Year to Date 11,787 0 0 11,687 16.9 11,787 17.9 24.9
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
------ -------- -------- -------- ------- --------
CLASS A SHARES
<S> <C> <C> <C> <C> <C>
Life of Fund(+) 3,351.3% 402.2% NA 2,788.9% 705.0%
Ten Years 295.2 40.2 292.6% 250.6 72.6
Five Years 156.8 14.1 145.3 137.7 25.8
One Year 40.4 2.2 36.3 34.6 5.2
Year to Date 29.6 1.6 28.5 25.6 2.6
CLASS B SHARES
Life of Fund(++) 124.3% 9.3% 128.6% 98.6% 19.9%
One Year 40.4 2.2 36.3 34.6 5.2
Year to Date 29.6 1.6 28.5 25.6 2.6
CLASS C SHARES
Life of Fund(++) 124.3% 9.3% 128.6% 98.6% 19.9%
One Year 40.4 2.2 36.3 34.6 5.2
Year to Date 29.6 1.6 28.5 25.6 2.6
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
-------------- ------- ------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.9% *% *% 11.6% 11.9% 5.3% NA
Life of Fund(++) * 17.3 17.9 28.1 27.4 2.7 28.2%
Ten Years 12.0 * * 15.3 14.7 3.4 14.7
Five Years 12.7 * * 22.5 20.8 2.7 19.7
One Year 13.1 16.0 18.9 37.7 40.4 2.2 36.3
<CAPTION>
U.S.
AVERAGE ANNUAL Lipper Treasury
TOTAL RETURN Growth Bill
TABLE Fund(9) Index(8)
-------------- ------- --------
<S> <C> <C>
Life of Fund(+) 11.3% 6.9%
Life of Fund(++) 22.8 5.6
Ten Years 13.4 5.6
Five Years 18.9 4.7
One Year 34.6 5.2
</TABLE>
- ---------------
(+) Since April 4, 1966 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-41
<PAGE> 173
QUANTITATIVE EQUITY FUND -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ---------- ---------- ---------- ---------- ------------ ------------ ----------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) $12,927 $0 $228 $13,155 31.6% $13,958 39.6% 50.6%
One Year 11,042 0 195 11,237 12.4 11,925 19.3 22.2
Year to Date 11,390 0 0 11,390 13.9 12,087 20.9 23.4
CLASS B SHARES
Life of Fund(+) $13,516 $0 $240 $13,456 34.6% $13,756 37.6% 50.6%
One Year 11,630 0 207 11,537 15.4 11,837 18.4 22.2
Year to Date 12,011 0 0 11,611 16.1 12,011 20.1 23.4
CLASS C SHARES
Life of Fund(+) $13,536 $0 $241 $ * *% $13,777 37.8% 50.6%
One Year 11,638 0 207 * * 11,845 18.5 22.2
Year to Date 12,019 0 0 11,919 19.2 12,019 20.2 23.4
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
------ -------- -------- -------- ------- --------
CLASS A SHARES
<S> <C> <C> <C> <C> <C>
Life of Fund(+) 55.8% 4.7% 51.0% 44.5% 7.9%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
CLASS B SHARES
Life of Fund(+) 55.8% 4.7% 51.0% 44.5% 7.9%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
CLASS C SHARES
Life of Fund(+) 55.8% 4.7% 51.0% 44.5% 7.9%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
-------------- ------- ------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 16.6% 18.0% 19.6% 25.7% 28.1% 2.6% 26.5%
<CAPTION>
U.S.
AVERAGE ANNUAL Lipper Treasury
TOTAL RETURN Growth Bill
TABLE Fund(9) Index(8)
-------------- ------- --------
<S> <C> <C>
Life of Fund(+) 22.8% 4.4%
</TABLE>
- ---------------
(+) Since February 15, 1996 for Class A, B and C shares.
B-42
<PAGE> 174
SMALL CAP FUND -- SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $37,607 $229,569 $70,009 $337,185 3,271.9% $357,753 3,477.5% 2,788.1%
Ten Years 11,240 18,189 4,396 33,825 238.3 35,898 259.0 316.4
Five Years 14,327 7,554 1,007 22,888 128.9 24,283 142.8 175.5
One Year 10,725 864 121 11,710 17.1 12,429 24.3 37.7
Year to Date 12,000 0 0 12,000 20.0 12,727 27.3 24.9
CLASS B SHARES
Life of Fund(++) $13,522 $ 4,432 $ 794 $ 18,548 85.5% $ 18,748 87.5% 128.7%
One Year 11,219 933 131 11,983 19.8 12,283 22.8 37.7
Year to Date 12,607 0 0 12,207 22.1 12,607 26.1 24.9
CLASS C SHARES
Life of Fund(++) $13,505 $ 4,434 $ 795 $ * *% $ 18,734 87.3% 128.7%
One Year 11,221 935 131 * * 12,287 22.9 37.7
Year to Date 12,612 0 0 12,512 25.1 12,612 26.1 24.9
<CAPTION>
Russell
TOTAL Standard Consumer 1000(R)
RETURN & Poor's Price Wilshire Growth
TABLE 500(4) Index(5) 4500 Index(6)
------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 2,763.2% 350.3% NA NA
Ten Years 295.2 40.2 251.3% 292.6%
Five Years 156.8 14.1 148.8 145.3
One Year 40.4 2.2 32.1 36.3
Year to Date 29.6 1.6 27.5 28.5
CLASS B SHARES
Life of Fund(++) 124.3% 9.3% 101.5% 128.6%
One Year 40.4 2.2 32.1 36.3
Year to Date 29.6 1.6 27.5 28.5
CLASS C SHARES
Life of Fund(++) 124.3% 9.3% 101.5% 128.6%
One Year 40.4 2.2 32.1 36.3
Year to Date 29.6 1.6 27.5 28.5
</TABLE>
<TABLE>
<CAPTION>
Dow
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer Russell
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Wilshire 1000(R) Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) 4500 Index(6)
-------------- ------- ------- ------- ---------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 13.1% *% *% 12.5% 12.4% 5.4% NA NA
Life of Fund(++) * 20.3 20.7 28.1 27.4 2.7 23.4% 28.2%
Ten Years 13.0 * * 15.3 14.7 3.4 13.4 14.7
Five Years 18.0 * * 22.5 20.8 2.7 20.0 19.7
One Year 17.1 19.8 22.9 37.7 40.4 2.2 32.1 36.3
</TABLE>
- ---------------
(+) Since February 20, 1969 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA - Not Available.
B-43
<PAGE> 175
TECHNOLOGY FUND -- OCTOBER 31, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage Dow
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $55,343 $3,623,143 $665,479 $4,343,965 43,339.7% $4,611,214 46,012.1% 34,104.0%
Ten Years 10,521 26,801 3,488 40,810 308.1 43,309 333.1 407.2
Five Years 12,434 10,959 1,138 24,531 145.3 26,035 160.4 161.4
One Year 9,405 1,635 0 11,040 10.4 11,711 17.1 25.8
Year to Date 10,330 0 0 10,330 3.3 10,960 9.6 17.2
CLASS B SHARES
Life of Fund(++) $12,552 $ 7,134 $ 971 $ 20,457 104.6% $ 20,657 106.6% 114.6%
One Year 9,820 1,771 0 11,296 13.0 11,591 15.9 25.8
Year to Date 10,876 0 0 10,476 4.8 10,876 8.8 17.2
CLASS C SHARES
Life of Fund(++) $12,652 $ 7,152 $ 973 $ * *% $ 20,777 107.8% 114.6%
One Year 9,836 1,762 0 * * 11,598 16.0 25.8
Year to Date 10,878 0 0 10,778 7.8 10,878 8.8 17.2
<CAPTION>
Russell
TOTAL Standard Consumer 1000(R)
RETURN & Poor's Price Growth
TABLE 500(4) Index(5) Index(6)
------ -------- -------- --------
<S> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 41,183.2% 559.6% NA
Ten Years 387.0 40.2 392.5%
Five Years 147.1 14.0 132.8
One Year 32.1 2.1 30.5
Year to Date 25.4 1.9 23.8
CLASS B SHARES
Life of Fund(++) 116.9% 9.6% 120.2%
One Year 32.1 2.1 30.5
Year to Date 25.4 1.9 23.8
CLASS C SHARES
Life of Fund(++) 116.9% 9.6% 120.2%
One Year 32.1 2.1 30.5
Year to Date 25.4 1.9 23.8
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 1000(R) Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
- -------------- ------- ------- ------- ---------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+) 13.2% *% *% 12.6% 13.0% 3.9% NA
Life of
Fund(++) * 23.3 23.8 25.0 25.4 2.7 26.0%
Ten Years 15.1 * * 17.6 17.2 3.4 17.3
Five Years 19.7 * * 21.2 19.8 2.7 18.4
One Year 10.4 13.0 16.0 25.8 32.1 2.1 30.5
</TABLE>
- ---------------
(+) Since September 7, 1948 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA - Not Available.
B-44
<PAGE> 176
TOTAL RETURN FUND -- OCTOBER 31, 1997
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage Dow
TOTAL $10,000 Gain Dividends Value Increase Value Increase Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ---------- ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $26,872 $169,595 $234,049 $430,516 4,205.2% $457,048 4,470.5% 3,538.3%
Ten Years 14,765 7,446 9,220 31,431 214.3 33,342 233.4 407.2
Five Years 10,618 3,511 2,815 16,944 69.4 17,970 79.7 161.4
One Year 9,474 1,007 728 11,209 12.1 11,895 19.0 25.8
Year to Date 10,608 0 221 10,829 8.3 11,485 14.9 17.2
CLASS B SHARES
Life of Fund(++) $12,262 $ 1,918 $ 1,601 $ 15,581 55.8% $ 15,781 57.8% 114.6%
One Year 10,053 1,069 664 11,486 14.9 11,786 17.9 25.8
Year to Date 11,240 0 157 10,997 10.0 11,397 14.0 17.2
CLASS C SHARES
Life of Fund(++) $12,272 $ 1,922 $ 1,645 $ * *% $ 15,839 58.4% 114.6%
One Year 10,053 1,068 671 * * 11,792 17.9 25.8
Year to Date 11,239 0 161 11,300 13.0 11,400 14.0 17.2
<CAPTION>
Russell
TOTAL Standard Consumer 1000(R) Lipper Lehman Bros.
RETURN & Poor's Price Growth Balanced Gov't/Corp.
TABLE 500(4) Index(5) Index(6) Fund(11) Index(12)
------ -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 3,978.3% 423.0% NA 2,455.0% *%
Ten Years 387.0 40.2 392.5% 231.5 140.9
Five Years 147.1 14.0 132.8 86.5 44.4
One Year 32.1 2.1 30.5 20.1 8.8
Year to Date 25.4 1.9 23.8 16.2 8.1
CLASS B SHARES
Life of Fund(++) 116.9% 9.6% 120.2% 64.0% 33.4%
One Year 32.1 2.1 30.5 20.1 8.8
Year to Date 25.4 1.9 23.8 16.2 8.1
CLASS C SHARES
Life of Fund(++) 116.9% 9.6% 120.2% 64.0% 33.4%
One Year 32.1 2.1 30.5 20.1 8.8
Year to Date 25.4 1.9 23.8 16.2 8.1
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Lipper Lehman Bros.
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 1000(R) Growth Balanced Gov't/Corp.
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(11) Index(12)
------------ ------- ------- ------- ---------- -------- -------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 11.8% *% *% 11.3% 11.6% 5.0% NA 10.1% *%
Life of Fund(++) * 13.9 14.4 25.0 25.4 2.7 26.0% 15.6 8.8
Ten Years 12.1 * * 17.6 17.2 3.4 17.3 12.7 9.2
Five Years 11.1 * * 21.2 19.8 2.7 18.4 13.3 7.6
One Year 12.1 14.9 17.9 25.8 32.1 2.1 30.5 20.1 8.8
</TABLE>
- ---------------
(+) Since March 2, 1964 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-45
<PAGE> 177
VALUE+GROWTH FUND -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
------ ---------- ---------- ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $14,503 $123 $897 $15,523 55.2% $16,471 64.7% 71.0%
One Year 10,640 90 658 11,388 13.9 12,083 20.8 22.2
Year to Date 11,622 0 0 11,622 16.2 12,327 23.3 23.4
CLASS B SHARES
Life of Fund(+) $15,126 $129 $945 $15,900 59.0% $16,200 62.0% 71.0%
One Year 11,201 96 699 11,696 17.0 11,996 20.0 22.2
Year to Date 12,240 0 0 11,840 18.4 12,240 22.4 23.4
CLASS C SHARES
Life of Fund(+) $15,126 $129 $945 $ * *% $16,200 62.0% 71.0%
One Year 11,191 96 699 * * 11,986 19.9 22.2
Year to Date 12,230 0 0 12,130 21.3 12,230 22.3 23.4
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
------ -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 70.9% 5.5% 66.0% 51.6% 10.7%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
CLASS B SHARES
Life of Fund(+) 70.9% 5.5% 66.0% 51.6% 10.7%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
CLASS C SHARES
Life of Fund(+) 70.9% 5.5% 66.0% 51.6% 10.7%
One Year 28.5 1.9 26.5 23.6 5.2
Year to Date 31.1 1.9 29.0 26.0 2.6
</TABLE>
<TABLE>
<CAPTION>
Dow Russell U.S.
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9) Index(8)
-------------- ------- ------- ------- ---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 22.9% 24.3% 25.4% 28.6% 28.6% 2.5% 27.5% 21.6% 4.9%
</TABLE>
- ---------------
(+) Since October 16, 1995 for Class A, B and C shares.
B-46
<PAGE> 178
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B shares for the
contingent deferred sales charge that may be imposed at the end of the
period based upon the schedule for shares sold currently, see "Redemption
or Repurchase of Shares" in the prospectus. No adjustments were made to
Class C shares. Amounts were adjusted for Class C shares for the contingent
deferred sales charge that may be imposed for periods less than one year.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth
orientation and represents the universe of stocks from which
"earnings/growth" money managers typically select. Assumes reinvestment of
dividends. Source is Lipper Analytical Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of certain mutual funds tracked by Lipper Analytical
Services, Inc. The largest mutual funds within the Lipper "growth and
income investment" objective category are included in the index.
Performance is based on changes in net asset value with all dividends
reinvested and with no adjustment for sales charges. Source is Towers Data
Systems.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Lipper Growth Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services,
Inc. The largest mutual funds within the Lipper "growth investment"
objective category are included in the index. Performance is based on
changes in net asset value with all dividends reinvested and with no
adjustment for sales changes. Source is Towers Data Systems.
(10) The Wilshire 4500 Index Trust is a capitalization-weighted index, including
all of the securities in the Wilshire 5000 Index with the exception of the
S&P 500 securities.
(11) The Lipper Balanced Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services,
Inc., New York, New York. The largest mutual funds within the Lipper
"balanced investment" objective category are included in the index.
Performance is based on changes in net asset value with all dividends
reinvested and with no adjustment for sales charges. Source is Towers Data
Systems.
(12) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic
debt of the U.S. Government or any agency thereof, quasi-federal
corporation, or corporate debt guaranteed by the U.S. Government and all
publicly issued, fixed-rate, non-convertible, domestic debt of the three
major corporate classifications: industrial, utility, and financial. Only
notes and bonds with a minimum outstanding principal amount of $1,000,000
and a minimum of one year to maturity are included. Bonds included must
have a rating of at least Baa by Moody's Investors Service, Inc., BBB by
Standard & Poor's Corporation or in the case of bank bonds not rated by
either Moody's or S&P, BBB by Fitch Investors Service. This index is
unmanaged. Source is Towers Data Systems.
(13) The Russell 3000(R) Index is an unmanaged index comprised of 3000 of the
largest capitalized U.S. domiciled companies whose common stocks trade in
the U.S. This portfolio of securities represents approximately 98 percent
of the investable U.S. equity market.
B-47
<PAGE> 179
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of a Fund, such as the Total
Return Fund, to the performance of a hypothetical portfolio weighted 60% in the
Standard & Poor's 500 Stock Index (an unmanaged index generally representative
of the U.S. stock market) and 40% in the Lehman Brothers Government/ Corporate
Bond Index (an unmanaged index generally representative of intermediate and
long-term government and investment grade corporate debt securities). See the
footnotes above for a more complete description of these indexes. The Total
Return Fund may invest in both equity and fixed income securities. The
percentage of assets invested in each type of security will vary from time to
time in the discretion of the Fund's investment manager and will not necessarily
approximate the 60%/40% weighting of this hypothetical index.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund, which includes the current maximum sales charge of 5.75%, with
income and capital gain dividends reinvested in additional shares. Each table
covers the period from commencement of operations of the Fund to December 31,
1997.
B-48
<PAGE> 180
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND (12/31/96)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 $ 0 $ 0 $ 9,425 $ 0 $ 0 $ 9,425
1997 546 0 11,994 577 0 12,571
- --------------------------------------------------------------------------------
</TABLE>
BLUE CHIP FUND (11/23/87)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987 $ 0 $ 0 $ 9,519 $ 0 $ 0 $ 9,519
1988 339 0 8,545 342 0 8,887
1989 220 0 10,650 659 0 11,309
1990 134 0 10,776 806 0 11,582
1991 531 712 14,284 1,657 786 16,727
1992 185 0 13,949 1,810 768 16,527
1993 897 374 13,392 2,647 1,118 17,157
1994 269 27 12,472 2,733 1,068 16,273
1995 1,201 714 14,932 4,497 2,006 21,435
1996 3,027 1,993 15,517 7,743 4,112 27,372
1997 3,455 928 17,057 12,023 5,466 34,546
- --------------------------------------------------------------------------------
</TABLE>
B-49
<PAGE> 181
- --------------------------------------------------------------------------------
GROWTH FUND (4/4/66)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1966 $ 0 $ 0 $ 8,920 $ 0 $ 0 $ 8,916
1967 75 954 13,165 77 984 14,220
1968 121 1,278 15,103 211 2,371 17,684
1969 242 836 12,897 410 2,862 16,168
1970 306 0 12,137 726 2,692 15,548
1971 313 652 13,794 1,143 3,757 18,692
1972 280 765 13,907 1,419 4,544 19,876
1973 322 0 11,089 1,471 3,622 16,174
1974 384 0 7,779 1,383 2,541 11,698
1975 368 0 10,809 2,295 3,530 16,626
1976 376 0 13,689 3,303 4,471 21,452
1977 383 0 13,757 3,715 4,495 21,963
1978 661 572 15,439 4,827 5,613 25,879
1979 852 3,998 18,775 6,772 10,900 36,439
1980 1,097 5,842 23,439 9,656 19,407 52,502
1981 1,053 2,201 19,253 8,955 18,257 46,465
1982 1,364 1,691 23,346 12,515 24,081 59,942
1983 4,257 5,471 25,476 17,849 31,659 74,984
1984 1,772 6,113 20,973 16,409 32,242 69,624
1985 2,313 8,923 22,822 20,376 45,166 88,364
1986 3,785 22,963 18,803 20,481 60,930 100,214
1987 12,643 22,692 13,065 26,916 65,975 105,956
1988 3,977 0 13,963 32,949 70,505 117,417
1989 2,844 0 17,907 45,201 90,420 153,528
1990 2,898 6,132 17,495 47,095 94,866 159,456
1991 7,496 5,963 27,552 82,490 156,017 266,059
1992 542 542 27,009 81,412 153,492 261,913
1993 1,631 16,494 25,552 78,674 161,958 266,184
1994 0 3,505 23,701 72,977 153,770 250,448
1995 8,987 24,887 27,981 95,333 206,954 330,268
1996 30,446 65,524 24,393 113,668 246,187 384,248
1997 37,100 24,439 24,467 152,226 272,111 448,804
</TABLE>
- --------------------------------------------------------------------------------
B-50
<PAGE> 182
- --------------------------------------------------------------------------------
QUANTITATIVE EQUITY (2/15/96)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 $188 $ 0 $10,694 $189 $ 0 $10,883
1997 333 202 12,411 556 204 13,171
</TABLE>
- --------------------------------------------------------------------------------
B-51
<PAGE> 183
- --------------------------------------------------------------------------------
SMALL CAP FUND (2/20/69)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1969 $ 94 $ 0 $ 9,179 $ 95 $ 0 $ 9,274
1970 172 0 8,924 275 0 9,199
1971 117 243 10,868 463 267 11,598
1972 121 634 10,925 583 890 12,398
1973 193 0 7,745 615 631 8,991
1974 197 0 4,953 585 403 5,941
1975 192 0 7,585 1,096 618 9,299
1976 162 0 9,915 1,605 808 12,328
1977 223 0 10,981 2,007 895 13,883
1978 358 1,527 11,548 2,469 2,471 16,488
1979 1,455 1,845 14,009 4,521 4,932 23,462
1980 1,770 1,232 18,670 7,745 7,771 34,186
1981 829 1,607 16,916 7,931 8,811 33,658
1982 657 1,201 20,472 10,389 12,108 42,969
1983 1,386 3,307 23,170 13,087 16,875 53,132
1984 1,082 0 20,934 12,916 15,247 49,097
1985 1,217 1,482 25,386 17,035 20,161 62,582
1986 581 11,279 24,104 16,782 30,928 71,814
1987 5,059 17,848 15,990 16,510 39,485 71,985
1988 1,062 0 16,982 18,656 41,931 77,569
1989 2,370 0 20,896 25,344 51,599 97,839
1990 1,325 6,405 18,019 23,288 51,425 92,732
1991 4,370 7,283 27,925 40,971 87,829 156,725
1992 0 12,972 25,613 37,580 93,726 156,919
1993 578 9,825 28,161 41,914 113,195 183,270
1994 0 10,437 25,566 38,053 113,583 177,202
1995 7,520 26,809 28,303 50,068 154,057 232,428
1996 2,709 19,351 29,548 55,007 180,376 264,931
1997 845 33,380 31,574 59,670 227,911 319,155
</TABLE>
- --------------------------------------------------------------------------------
B-52
<PAGE> 184
- --------------------------------------------------------------------------------
TECHNOLOGY FUND (9/7/48)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1948 $ 0 $ 0 $10,127 $ 0 $ 0 $ 10,127
1949 305 112 10,907 354 125 11,386
1950 618 510 12,490 1,046 659 14,195
1951 722 569 13,608 1,870 1,312 16,790
1952 700 303 15,158 2,854 1,779 19,791
1953 812 595 14,325 3,494 2,292 20,111
1954 962 1,308 22,406 6,656 5,050 34,112
1955 1,129 1,681 24,367 8,426 7,310 40,103
1956 1,286 1,973 24,873 9,890 9,466 44,229
1957 1,362 2,109 20,485 9,344 9,912 39,741
1958 1,356 1,883 29,557 15,178 16,404 61,139
1959 1,430 2,771 34,283 19,144 22,002 75,429
1960 1,591 3,018 32,615 19,858 24,191 76,664
1961 1,498 3,620 37,426 24,332 31,506 93,264
1962 1,482 2,766 29,367 20,530 27,753 77,650
1963 1,686 3,388 32,152 24,207 33,809 90,168
1964 2,026 3,949 34,220 27,804 39,936 101,960
1965 2,279 5,209 41,983 36,626 54,459 133,068
1966 2,421 7,556 36,878 34,531 56,060 127,469
1967 2,347 16,506 43,123 42,726 83,106 168,955
1968 2,661 29,453 38,354 40,541 104,411 183,306
1969 4,067 15,134 30,970 36,388 98,699 166,057
1970 4,576 2,306 29,156 39,278 95,450 163,884
1971 4,307 7,228 31,519 46,839 111,044 189,402
1972 3,573 9,256 32,320 51,550 123,411 207,281
1973 4,092 0 26,202 45,665 100,050 171,917
1974 5,036 0 19,704 38,853 75,239 133,796
1975 5,503 0 26,160 57,435 99,889 183,484
1976 5,671 0 31,983 76,277 122,122 230,382
</TABLE>
B-53
<PAGE> 185
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1977 $ 6,134 $ 3,081 $30,127 $ 78,198 $ 118,387 $ 226,712
1978 8,346 6,127 34,852 99,253 143,347 277,452
1979 8,825 14,677 42,911 132,292 192,861 368,064
1980 11,331 22,789 59,831 198,060 293,649 551,540
1981 12,949 29,973 46,878 166,926 259,055 472,859
1982 15,945 18,664 53,122 207,300 312,576 572,998
1983 22,078 88,219 53,165 228,712 402,902 684,779
1984 18,122 67,505 44,050 206,394 401,017 651,461
1985 11,304 43,186 51,561 253,748 516,719 822,028
1986 11,483 185,857 46,920 240,583 653,079 940,582
1987 28,099 200,645 38,481 222,331 744,271 1,005,083
1988 25,656 56,631 36,414 236,256 763,523 1,036,193
1989 35,011 36,281 42,828 314,484 935,927 1,293,237
1990 25,588 29,491 41,138 327,604 930,196 1,298,939
1991 18,709 328,427 47,131 395,051 1,432,891 1,875,073
1992 0 216,548 41,055 344,122 1,467,648 1,852,825
1993 0 127,584 42,953 360,038 1,666,453 2,069,449
1994 0 304,928 41,308 346,245 1,916,846 2,304,399
1995 164,768 336,598 49,199 591,597 2,649,098 3,289,894
1996 0 594,714 50,496 607,192 3,305,808 3,963,496
1997 29,776 678,228 44,805 569,410 3,631,208 4,245,423
</TABLE>
- --------------------------------------------------------------------------------
B-54
<PAGE> 186
- --------------------------------------------------------------------------------
TOTAL RETURN FUND (3/2/64)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1964 $ 286 $ 36 $ 9,775 $ 280 $ 35 $ 10,090
1965 485 75 10,249 788 113 11,150
1966 498 133 9,337 1,195 238 10,770
1967 528 533 10,367 1,854 821 13,042
1968 576 934 11,552 2,685 1,869 16,106
1969 705 186 9,608 2,880 1,734 14,222
1970 787 91 9,977 3,851 1,899 15,727
1971 798 308 10,806 4,991 2,382 18,179
1972 913 475 11,102 6,040 2,937 20,079
1973 1,095 0 9,502 6,202 2,514 18,218
1974 1,164 0 7,370 5,841 1,950 15,161
1975 1,251 0 9,324 8,721 2,467 20,512
1976 1,412 0 11,920 12,712 3,153 27,785
1977 1,580 689 11,517 13,873 3,777 29,167
1978 1,997 2,026 11,173 15,386 5,733 32,292
1979 2,493 3,239 12,547 19,958 9,982 42,487
1980 3,872 2,955 15,545 29,058 15,524 60,127
1981 2,893 2,272 14,278 29,458 16,532 60,268
1982 4,254 2,803 15,771 37,194 21,076 74,041
1983 8,825 3,719 16,256 47,149 25,542 88,947
1984 4,093 1,005 15,142 48,081 24,798 87,961
1985 5,472 2,977 17,891 62,603 32,510 113,004
1986 6,471 12,816 18,069 69,383 45,459 132,911
1987 5,213 3,478 16,564 67,975 45,219 129,758
1988 7,763 0 16,991 77,756 46,384 141,131
1989 7,619 0 19,432 96,645 53,047 169,124
1990 10,289 0 19,029 105,091 51,947 176,067
1991 8,001 6,055 24,999 146,974 74,795 246,768
1992 6,616 9,754 23,957 147,512 81,449 252,918
1993 10,120 22,863 23,578 155,228 103,420 282,226
1994 6,437 0 20,901 143,755 91,675 256,331
1995 12,811 11,545 24,265 179,922 118,210 322,467
1996 23,184 34,012 23,886 200,221 150,791 374,858
1997 31,868 39,103 23,934 232,013 190,663 446,610
</TABLE>
- --------------------------------------------------------------------------------
B-55
<PAGE> 187
- --------------------------------------------------------------------------------
VALUE+GROWTH FUND (10/16/95)
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 0 $ 0 $10,030 $ 0 $ 0 $10,030
1996 724 99 11,766 727 100 12,593
1997 372 159 14,146 1,252 282 15,680
</TABLE>
- --------------------------------------------------------------------------------
* Includes short-term capital gain dividends.
B-56
<PAGE> 188
The following tables compare the performance of the Class A shares of the Funds
over various periods with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. Each category includes funds with a
variety of objectives, policies and market and credit risks that should be
considered in reviewing these rankings.
AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
CAPITAL APPRECIATION
FUNDS
----------------------
<S> <C>
One Year (Period ended
12/31/97)....................... 24 of 231
</TABLE>
The Lipper Capital Appreciation Fund category includes funds which aim to
maximize capital appreciation.
BLUE CHIP FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
GROWTH & INCOME
FUNDS
----------------------
<S> <C>
Ten Year (Period ended
12/31/97)....................... 117 of 136
Five Year (Period ended
12/31/97)....................... 186 of 240
One Year (Period ended
12/31/97)....................... 361 of 611
</TABLE>
The Lipper Growth & Income Funds category includes funds which combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
GROWTH FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
GROWTH FUNDS
----------------------
<S> <C>
Ten Years (Period ended
12/31/97)....................... 115 of 181
Five Years (Period ended
12/31/97)....................... 293 of 311
One Year (Period ended
12/31/97)....................... 709 of 820
</TABLE>
The Lipper Growth Funds category includes funds which normally invest in
companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices.
B-57
<PAGE> 189
QUANTITATIVE FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
GROWTH FUNDS
----------------------
<S> <C>
One Year (Period ended
12/31/97)....................... 602 of 820
</TABLE>
The Lipper Growth Funds category includes funds which normally invest in
companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices.
SMALL CAP FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
SMALL CAP COMPANY
GROWTH FUNDS
----------------------
<S> <C>
Ten Years (Period ended
12/31/97)....................... 35 of 56
Five Years (Period ended
12/31/97)....................... 85 of 138
One Year (Period ended
12/31/97)....................... 251 of 466
</TABLE>
The Lipper Small Company Growth Fund category includes funds which by prospectus
or portfolio practice limit their investments to companies on the basis of the
size of the company.
TECHNOLOGY FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
SCIENCE &
TECHNOLOGY FUNDS
----------------------
<S> <C>
Ten Years (Period ended
12/31/97)....................... 11 of 12
Five Years (Period ended
12/31/97)....................... 10 of 15
One Year (Period ended
12/31/97)....................... 31 of 57
</TABLE>
The Lipper Science & Technology Funds category includes funds which invest 65%
of their equity portfolio in science and technology stocks.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
BALANCED FUNDS
----------------------
<S> <C>
Ten Years (Period ended
12/31/97)....................... 21 of 48
Five Years (Period ended
12/31/97)....................... 78 of 109
One Year (Period ended
12/31/97)....................... 173 of 350
</TABLE>
The Lipper Balanced Fund category includes funds whose primary objectives are to
conserve principal by maintaining at all times a balanced portfolio of both
stock and bonds. Typically, the stock/bond ratio ranges around 60% to 40%.
B-58
<PAGE> 190
VALUE + GROWTH FUND
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
----------------------
GROWTH & INCOME
----------------------
<S> <C>
One Year (Period ended
12/31/97)....................... 449 of 611
</TABLE>
The Lipper Growth & Income Fund category includes funds which combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
B-59
<PAGE> 191
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper, the investment
manager, and KDI, the principal underwriter, are listed below. All persons named
as trustees also serve in similar capacities for other funds advised by Scudder
Kemper.
ALL FUNDS:
DAVID W. BELIN (6/20/28), Trustee, 2000 Financial Center, 7th and Walnut, Des
Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food products); prior thereto,
Vice President, Head of International Operations, FMC Corporation (manufacturer
of machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director; Bethlehem Steel Corp.
DANIEL PIERCE (3/18/34), Trustee*, 345 Park Avenue, New York, New York; Chairman
of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust
Company and Fiduciary Company Incorporated.
WILLIAM P. SOMMERS (7/22/33), Trustee, 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); formerly, Executive Vice President, Iameter (medical
information and educational service provider), prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
B-60
<PAGE> 192
EDMOND D. VILLANI (3/4/47), Trustee*, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Scudder Kemper.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
STEVEN H. REYNOLDS (9/11/43), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President and Chief Investment
Officer -- Equities, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI.
AGGRESSIVE GROWTH FUND & SMALL CAP FUND:
KURT R. STALZER (5/1/58), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, Scudder Kemper; formerly, senior portfolio
manager with an unaffiliated investment management firm.
BLUE CHIP FUND:
TRACY McCORMICK CHESTER (9/27/54), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper;
B-61
<PAGE> 193
formerly, Portfolio Manager for Fiduciary Management; prior thereto, independent
consultant managing private accounts.
QUANTITATIVE FUND & VALUE+GROWTH FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
Scudder Kemper.
TOTAL RETURN FUND:
GARY A. LANGBAUM (12/16/48), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President, Scudder Kemper.
- ---------------
* Interested persons of the Fund as defined in the Investment Company Act of
1940.
B-62
<PAGE> 194
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during
each Fund's 1997 fiscal year except that the information in the last column is
for calendar year 1997.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FUND
----------------------------------------------
BLUE
NAME OF TRUSTEE AGGRESSIVE(A) CHIP GROWTH QUANTITATIVE
--------------- ------------- ---- ------ ------------
<S> <C> <C> <C> <C>
David W. Belin*.................................. $ 0 $3,400 $9,400 $800
Lewis A. Burnham................................. $ 0 $2,300 $5,200 $500
Donald L. Dunaway*............................... $ 0 $3,700 $9,300 $900
Robert B. Hoffman................................ $ 0 $2,300 $5,200 $500
Donald R. Jones.................................. $ 0 $2,400 $5,600 $500
Shirley D. Peterson.............................. $ 0 $2,200 $5,300 $500
William P. Sommers............................... $ 0 $2,200 $5,100 $500
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM FUND FROM FUND AND
---------------------------------- KEMPER FUND
SMALL TOTAL VALUE+ COMPLEX
NAME OF TRUSTEE CAP TECH RETURN GROWTH PAID TO TRUSTEES**
--------------- ----- ---- ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
David W. Belin*.................................. $6,500 $7,400 $10,100 $1,500 $168,100
Lewis A. Burnham................................. $3,800 $4,000 $ 5,600 $1,000 $117,800
Donald L. Dunaway*............................... $6,400 $7,000 $ 9,800 $1,700 $162,700
Robert B. Hoffman................................ $3,800 $4,000 $ 5,600 $1,000 $109,400
Donald R. Jones.................................. $4,000 $4,100 $ 5,800 $1,000 $114,200
Shirley D. Peterson.............................. $3,700 $3,900 $ 5,400 $1,000 $114,000
William P. Sommers............................... $3,600 $3,800 $ 5,300 $1,000 $109,400
</TABLE>
- ---------------
(a) No compensation for services as fee schedule not established. It is
anticipated that a fee schedule will be established in the future.
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Zurich Money Funds--Zurich Money
Market Fund. Total deferred amounts and interest accrued through each Fund's
fiscal year are $0, $15,600, $65,900, $800, $42,600, $57,700, $77,500 and
$1,500 for Mr. Belin and $0, $14,600, $44,400, $900, $26,700, $34,900,
$50,200 and $1,700 for Mr. Dunaway for the Aggressive, Blue Chip, Growth,
Quantitative, Small Cap, Technology, Total Return and Value+Growth Funds,
respectively.
** Includes compensation for service on the boards of 25 Kemper funds with 41
fund portfolios. Each trustee currently serves as a trustee of 26 Kemper
funds with 46 fund portfolios.
B-63
<PAGE> 195
As of January 7, 1998, except for Steven H. Reynolds, who beneficially owned
2.01 percent of the Aggressive Growth Fund, and William M. Knapp, who
beneficially owned 1.31 percent of the Quantitative Fund, the officers and
trustees of the Funds, as a group, owned less than 1% of the then outstanding
shares of each Fund and no person owned of record 5% or more of the outstanding
shares of any class of any Fund, except the persons indicated in the chart
below.
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
---------------- ------- ---- -----
<C> <S> <C> <C> <C>
** Scudder Kemper Investments, 23.86 Quantitative A
Inc. .......................
Accounting Department
222 S. Riverside Plaza
Chicago, IL 60606
* NFSC........................ 6.32 Aggressive A
One World Financial Center
200 Liberty Street, 4th
Floor
New York, NY 10281-1003
** Scudder Kemper Investments, 32.62 Quantitative B
Inc. .......................
Accounting Department
222 S. Riverside Plaza
Chicago, IL 60606
* BHC Securities, Inc. ....... 5.31 Quantitative B
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
* NFSC........................ 6.25 Aggressive B
One World Financial Center
200 Liberty Street, 4th
Floor
New York, NY 10281-1003
* PaineWebber................. 9.45 Aggressive B
Mutual Fund Department
1000 Harbor Blvd.
8th Floor
Weehawken, NJ 07087-6727
* BHC Securities, Inc. ....... 5.50 Aggressive B
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
</TABLE>
B-64
<PAGE> 196
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
---------------- ------- ---- -----
<C> <S> <C> <C> <C>
* Edward D. Jones & Co. ...... 6.58 Technology C
201 Progress Parkway
Maryland Hts, MO 63043-3009
* MLPFSS...................... 5.11 Small Cap C
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
** Scudder Kemper Investments, 72.01 Quantitative C
Inc. .......................
Accounting Department
222 S. Riverside Plaza
Chicago, IL 60606
** John E. Susong.............. 8.10 Quantitative C
7181 Chagrin Rd.
Chagrin Falls, OH 44023
* NFSC........................ 9.53 Aggressive C
One World Financial Center
200 Liberty Street, 4th
Floor
New York, NY 10281-1003
* PaineWebber................. 5.46 Aggressive C
Mutual Fund Department
1000 Harbor Blvd.
8th Floor
Weehawken, NJ 07087-6727
* PaineWebber FBO............. 8.79 Aggressive C
Michael Sequall
13835 North 107th Street
Longmont, CO 80501
** Wolf C. Neumann, M.D. ...... 5.18 Aggressive C
3400 Goltingen
Karl - Grueneklee - STR 4C
Germany
* NFSC........................ 5.21 Value+Growth C
One World Financial Center
200 Liberty Street, 4th
Floor
New York, NY 10281-1003
BT Alex Brown Incorporated.. 9.89 Value+Growth C
P.O. Box 1346
Baltimore, MD 21203
</TABLE>
B-65
<PAGE> 197
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
---------------- ------- ---- -----
<C> <S> <C> <C> <C>
Scudder Kemper Retirement 100 Technology I
Plans....................... 100 Total Return I
222 S. Riverside Plaza 100 Growth I
Chicago, IL 60606 100 Small Cap I
100 Quantitative I
100 Blue Chip I
</TABLE>
- ---------------
* Record and beneficial owner.
** Record owner only.
SHAREHOLDER RIGHTS
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("Declaration of
Trust"), however, shareholder meetings will be held in connection with the
following matters: (a) the election or removal of trustees if a meeting is
called for such purpose; (b) the adoption of any contract for which shareholder
approval is required by the Investment Company Act of 1940 ("1940 Act"); (c) any
termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (e) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Fund, or any registration of the
Fund with the Securities and Exchange Commission or any state, or as the
trustees may consider necessary or desirable. The shareholders also would vote
upon changes in fundamental investment objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee,
B-66
<PAGE> 198
each Fund has undertaken to disseminate appropriate materials at the expense of
the requesting shareholders.
Each Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of a Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio or class by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
B-67
<PAGE> 199
APPENDIX--RATINGS OF FIXED INCOME INVESTMENTS
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
B-68
<PAGE> 200
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
B-69
<PAGE> 201
PORTFOLIO OF INVESTMENTS
EXHIBIT C
FINANCIAL STATEMENTS FOR THE BLUE CHIP FUND
KEMPER BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--6.2% Bowater, Inc. 120,000 $ 6,713
Imperial Chemical Industries, PLC 140,000 10,176
Monsanto Co. 120,000 6,345
PPG Industries 140,000 9,896
Weyerhaeuser Co. 75,000 4,322
--------------------------------------------------------------------------
37,452
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.5% Corning, Inc. 160,000 6,400
Emerson Electric Co. 80,900 5,147
General Electric Co. 100,400 8,547
General Motors Corp.--Class H 165,000 9,116
Raytheon Co. 149,368 8,243
Sundstrand Corp. 85,000 5,870
Textron, Inc. 120,000 9,390
U.S. Industries 175,000 4,747
--------------------------------------------------------------------------
57,460
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--11.6% (a)CBS Corp. 200,000 7,125
(a)Consolidated Stores Corp. 190,000 7,600
J.C. Penney, Inc. 100,000 7,106
May Department Stores Co. 111,700 6,890
(a)Mirage Resorts, Inc. 220,000 4,854
Newell Co.
common stock 105,000 5,073
convertible preferred 62,000 3,550
(a)Proffitt's, Inc. 150,000 5,963
R.R. Donnelley & Sons Co. 199,000 8,768
(a)Univision Communications, Inc. 176,900 6,777
Walt Disney Co. 50,000 6,216
--------------------------------------------------------------------------
69,922
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--4.4% Federal-Mogul Corp.
common stock 40,000 2,588
convertible preferred 80,000 5,750
Goodyear Tire & Rubber Co. 113,200 7,924
Stanley Works 198,500 10,161
--------------------------------------------------------------------------
26,423
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--6.9% Dial Corp. 341,500 8,324
H.J. Heinz Co. 80,000 4,360
International Flavors & Fragrances 100,000 4,894
Kimberly-Clark Corp. 135,000 6,851
McCormick & Co. 270,000 9,248
(a)MGM Grand 143,200 4,833
Procter & Gamble Co. 39,000 3,205
--------------------------------------------------------------------------
41,715
</TABLE>
C-1
<PAGE> 202
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--9.1% Atlantic Richfield Co. 110,000 $ 8,580
Chevron Corp. 90,000 7,442
Enron Corp. 160,000 7,870
Exxon Corp. 75,000 5,470
Halliburton Co. 60,000 3,300
Mobil Corp. 112,600 8,895
Texaco 140,000 8,610
Unocal Corp. 111,000 4,544
--------------------------------------------------------------------------
54,711
- -----------------------------------------------------------------------------------------------------------------------
FINANCE--18.3% American Express Co. 22,000 2,244
American General Corp. 155,000 10,327
AmSouth Bancorporation 60,000 3,742
Beneficial Corp. 20,000 2,608
Boston Properties Inc. 158,600 5,244
CIGNA Corp. 56,200 11,630
Compass Bancshares 99,200 4,811
Equity Residential Properties Trust 70,000 3,439
Federal National Mortgage Association 75,000 4,491
First Chicago NBD Corp. 30,000 2,786
Fleet Financial Group, Inc. 28,800 2,488
General Growth Properties, Inc. 84,800 3,042
Jefferson-Pilot Corp. 165,000 9,683
KeyCorp 115,000 4,564
Lincoln National Corp. 70,000 6,217
Mellon Bank Corp. 45,000 3,240
NationsBank 50,000 3,788
Summit Bancorp 50,000 2,506
Torchmark Corp. 230,000 10,249
Travelers Group 50,000 3,059
Washington Mutual, Inc. 85,400 5,983
Wells Fargo & Co. 10,000 3,685
--------------------------------------------------------------------------
109,826
- -----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--8.9% ALZA Corp. 40,000 1,917
Abbott Laboratories 85,000 6,216
American Home Products Corp. 105,000 9,778
Baxter International, Inc. 145,000 8,038
Bristol-Myers Squibb Co. 57,000 6,035
(a)Crescendo Pharmaceutical Corp. 6,182 77
(a)HEALTHSOUTH Corp. 155,000 4,679
McKesson Corp.
common stock 20,000 1,414
convertible preferred 30,000 2,929
Schering-Plough Corp. 90,200 7,227
(a)Wellpoint Health Networks 68,100 4,912
--------------------------------------------------------------------------
53,222
</TABLE>
C-2
<PAGE> 203
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--13.1% Alcatel Alsthom 195,000 $ 7,069
(a)Cadence Design Systems 100,000 3,631
(a)Cisco Systems 45,000 3,296
Computer Sciences Corp. 60,000 3,165
(a)Gartner Group 130,000 4,306
Harris Corp. 110,000 5,321
Hewlett-Packard Co. 155,000 11,673
International Business Machines Corp. 100,000 11,588
Motorola 105,000 5,841
(a)Seagate Technology 100,000 2,669
(a)Sterling Commerce, Inc. 75,000 3,192
(a)Sun Microsystems 200,400 8,254
(a)Teradyne, Inc. 65,000 2,373
Texas Instruments 100,000 6,406
--------------------------------------------------------------------------
78,784
- -----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--3.8% CSX Corp. 140,000 7,350
Canadian Pacific, Ltd. 175,000 5,152
Norfolk Southern Corp. 160,000 5,350
Union Pacific Corp., convertible
preferred 95,000 5,011
--------------------------------------------------------------------------
22,863
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--5.9% AT&T 65,000 3,904
Ameritech Corp. 114,000 4,852
Cincinnati Bell, Inc. 309,100 11,823
SBC Communications, Inc. 127,000 5,263
Sprint Corp. 65,000 4,440
(a)WorldCom, Inc. 125,000 5,348
--------------------------------------------------------------------------
35,630
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--97.7%
(Cost: $514,634) 588,008
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE OBLIGATION PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--.8% ALZA Corp., 5.00%, 2006
(Cost: $3,196) $3,200 4,392
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.49% to 5.64%
INSTRUMENT--2.3% Due--May 1998
(Cost: $13,974) 14,000 13,975
--------------------------------------------------------------------------
TOTAL INVESTMENTS--100.8%
(Cost: $531,804) 606,375
--------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.8)% (4,590)
--------------------------------------------------------------------------
NET ASSETS--100% $601,785
--------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $531,804,000 for federal income tax purposes
at April 30, 1998, the gross unrealized appreciation was $79,475,000, the gross
unrealized depreciation was $4,904,000 and the net unrealized appreciation on
investments was $74,571,000.
See accompanying Notes to Financial Statements.
C-3
<PAGE> 204
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $531,804) $606,375
- ------------------------------------------------------------------------
Cash 2,016
- ------------------------------------------------------------------------
Receivable for:
Investments sold 3,501
- ------------------------------------------------------------------------
Fund shares sold 480
- ------------------------------------------------------------------------
Dividends and interest 700
- ------------------------------------------------------------------------
TOTAL ASSETS 613,072
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 10,127
- ------------------------------------------------------------------------
Fund shares redeemed 335
- ------------------------------------------------------------------------
Management fee 280
- ------------------------------------------------------------------------
Distribution services fee 120
- ------------------------------------------------------------------------
Administrative services fee 125
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 267
- ------------------------------------------------------------------------
Trustees' fees 33
- ------------------------------------------------------------------------
Total liabilities 11,287
- ------------------------------------------------------------------------
NET ASSETS $601,785
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $483,227
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 42,598
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 74,571
- ------------------------------------------------------------------------
Undistributed net investment income 1,389
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $601,785
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($400,737 / 21,993 shares outstanding) $18.22
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $19.33
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($175,428 / 9,668 shares outstanding) $18.15
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($18,788 / 1,029 shares outstanding) $18.25
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($6,832 / 374 shares outstanding) $18.26
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
C-4
<PAGE> 205
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 4,246
- -----------------------------------------------------------------------
Interest 809
- -----------------------------------------------------------------------
Total investment income 5,055
- -----------------------------------------------------------------------
Expenses:
Management fee 1,471
- -----------------------------------------------------------------------
Distribution services fee 613
- -----------------------------------------------------------------------
Administrative services fee 612
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 997
- -----------------------------------------------------------------------
Professional fees 11
- -----------------------------------------------------------------------
Reports to shareholders 106
- -----------------------------------------------------------------------
Trustees' fees and other 66
- -----------------------------------------------------------------------
Total expenses 3,876
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 1,179
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 42,764
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 40,696
- -----------------------------------------------------------------------
Net gain on investments 83,460
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $84,639
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------
Net investment income $ 1,179 2,978
- --------------------------------------------------------------------------------------------------
Net realized gain 42,764 56,879
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 40,696 14,551
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 84,639 74,408
- --------------------------------------------------------------------------------------------------
Net equalization credits 89 209
- --------------------------------------------------------------------------------------------------
Distribution from net investment income (1,759) (2,968)
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain (57,273) (48,419)
- --------------------------------------------------------------------------------------------------
Total dividends to shareholders (59,032) (51,387)
- --------------------------------------------------------------------------------------------------
Net increase from capital share transactions 129,198 167,489
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 154,894 190,719
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------
Beginning of period 446,891 256,172
- --------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$1,389 and $1,880, respectively) $601,785 446,891
- --------------------------------------------------------------------------------------------------
</TABLE>
C-5
<PAGE> 206
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Blue Chip Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
C-6 class
<PAGE> 207
NOTES TO FINANCIAL STATEMENTS
by dividing the Fund's net assets attributable to
that class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended April 30, 1998.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income
semi-annually and net realized capital gains
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES INVESTMENT MANAGER COMBINATION. Effective December
31, 1997, Zurich Insurance Company, the parent of
Zurich Kemper Investments, Inc. (ZKI), acquired a
majority interest in Scudder, Stevens & Clark, Inc.
(Scudder), another major investment manager. As a
result of this transaction, the operations of ZKI
were combined with Scudder to form a new global
investment organization named Scudder Kemper
Investments, Inc. (Scudder Kemper). The transaction
resulted in the termination of the Fund's
investment management agreement with ZKI, however,
a new investment management agreement between the
Fund and Scudder Kemper was approved by the Fund's
Board of Trustees and by the Fund's shareholders.
The new management agreement, which was effective
December 31, 1997, is the same in all material
respects as the previous management agreement,
except that Scudder Kemper is the new investment
adviser to the Fund. In addition, the names of the
Fund's principal underwriter and shareholder
service agent were changed to Kemper Distributors,
Inc. (KDI) and Kemper Service Company (KSvC),
respectively.
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper and pays a management
fee at an annual rate of .58% of the first $250
million of average daily net assets declining to
.42% of average daily net assets in excess of $12.5
billion. The Fund incurred a management fee of
$1,471,000 for the six months ended April 30, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
RETAINED BY ALLOWED BY KDI
KDI TO FIRMS
----------- --------------
<S> <C> <C>
Six months ended April 30, 1998 $94,000 800,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
C-7
<PAGE> 208
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended April 30, 1998 $748,000 $1,277,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Six months ended April 30, 1998 $612,000 636,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $782,000 for the six months ended
April 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the six months ended April
30, 1998, the Fund made no payments to its officers
and incurred trustees' fees of $10,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended April 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $503,615
Proceeds from sales 415,211
C-8
<PAGE> 209
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
SHARES SOLD
---------------------------------------------------------------------------------
Class A 6,161 $ 110,120 6,618 $ 112,272
---------------------------------------------------------------------------------
Class B 3,039 52,693 5,184 87,500
---------------------------------------------------------------------------------
Class C 520 9,142 580 9,803
---------------------------------------------------------------------------------
Class I 192 3,403 407 7,030
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------------
Class A 2,373 37,892 2,615 38,297
---------------------------------------------------------------------------------
Class B 978 16,011 716 10,448
---------------------------------------------------------------------------------
Class C 88 1,411 40 586
---------------------------------------------------------------------------------
Class I 48 756 1 23
---------------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------------
Class A (4,262) (75,004) (3,646) (61,114)
---------------------------------------------------------------------------------
Class B (1,041) (21,446) (1,845) (31,843)
---------------------------------------------------------------------------------
Class C (179) (3,127) (201) (3,375)
---------------------------------------------------------------------------------
Class I (154) (2,653) (121) (2,138)
---------------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------------
Class A 318 5,504 209 3,585
---------------------------------------------------------------------------------
Class B (319) (5,504) (210) (3,585)
---------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 129,198 $ 167,489
---------------------------------------------------------------------------------
</TABLE>
C-9
<PAGE> 210
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS A
-----------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED APRIL ---------------------------------
30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.68 17.14 14.87 12.33 13.88
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .18 .22 .19 .19
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.75 3.70 3.45 2.57 (.71)
- ------------------------------------------------------------------------------------------
Total from investment operations 2.82 3.88 3.67 2.76 (.52)
- ------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .09 .21 .20 .20 .19
- ------------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 .84
- ------------------------------------------------------------------------------------------
Total dividends 2.28 3.34 1.40 .22 1.03
- ------------------------------------------------------------------------------------------
Net asset value, end of period $18.22 17.68 17.14 14.87 12.33
- ------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.78% 26.78 26.72 22.74 (3.82)
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------
Expenses 1.20% 1.19 1.26 1.30 1.48
- ------------------------------------------------------------------------------------------
Net investment income .73% 1.07 1.40 1.47 1.50
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
CLASS B
----------------------------------------------------
YEAR ENDED OCTOBER 31,
SIX MONTHS MAY 31 TO
ENDED APRIL 30, OCTOBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.61 17.09 14.82 12.29 12.30
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) .04 .10 .09 .06
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.76 3.67 3.45 2.56 (.01)
- ---------------------------------------------------------------------------------------------
Total from investment operations 2.74 3.71 3.55 2.65 .05
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .01 .06 .08 .10 .06
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 --
- ---------------------------------------------------------------------------------------------
Total dividends 2.20 3.19 1.28 .12 .06
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $18.15 17.61 17.09 14.82 12.29
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.30% 25.62 25.82 21.76 .42
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 2.08% 2.06 2.08 2.06 2.43
- ---------------------------------------------------------------------------------------------
Net investment income (loss) (.15)% .20 .58 .71 .33
- ---------------------------------------------------------------------------------------------
</TABLE>
C-10
<PAGE> 211
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS C
------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31, MAY 31,
ENDED ----------------------- TO
APRIL 30, OCTOBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.69 17.15 14.88 12.32 12.30
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) .03 .10 .07 .09
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.78 3.71 3.45 2.62 (.01)
- -------------------------------------------------------------------------------------------
Total from investment operations 2.77 3.74 3.55 2.69 .08
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .02 .07 .08 .11 .06
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 --
- -------------------------------------------------------------------------------------------
Total dividends 2.21 3.20 1.28 .13 .06
- -------------------------------------------------------------------------------------------
Net asset value, end of period $18.25 17.69 17.15 14.88 12.32
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.37% 25.71 25.75 22.04 .67
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 2.03% 2.00 2.05 2.01 2.33
- -------------------------------------------------------------------------------------------
Net investment income (loss) (.10)% .26 .61 .76 .43
- -------------------------------------------------------------------------------------------
</TABLE>
C-11
<PAGE> 212
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------
CLASS I
----------------------------------------
SIX MONTHS NOVEMBER 22,
ENDED YEAR ENDED 1995 TO
APRIL 30, OCTOBER 31, OCTOBER 31,
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $17.72 17.18 15.30
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .32 .36
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 2.76 3.58 2.96
- -----------------------------------------------------------------------------------
Total from investment operations 2.87 3.90 3.32
- -----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .14 .23 .24
- -----------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20
- -----------------------------------------------------------------------------------
Total dividends 2.33 3.36 1.44
- -----------------------------------------------------------------------------------
Net asset value, end of period $18.26 17.72 17.18
- -----------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.07% 26.89 21.89
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------
Expenses .73% .70 1.31
- -----------------------------------------------------------------------------------
Net investment income 1.20% 1.56 1.33
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $601,785 446,891 256,172 168,266 153,172
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 183 166 117 131
- ---------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended April
30, 1998 and the years ended October 31, 1997 and 1996 were $.0585, $.0593 and $.0560,
respectively.
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Data for
the period ended April 30, 1998 is unaudited.
C-12
<PAGE> 213
PORTFOLIO OF INVESTMENTS
KEMPER BLUE CHIP FUND
Portfolio of Investments at October 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--2.8% Betz Dearborn, Inc. 68,700 $ 4,405
Canon, Inc. 1,000 24
Cementos Mexicanos, S.A. de C.V., "B," ADR 14,000 61
PPG Industries, Inc. 85,000 4,813
Rentokil Initial, PLC 22,000 89
RPM, Inc. 160,000 3,000
-------------------------------------------------------------------------
12,392
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.8% Emerson Electric Co. 65,900 3,456
GM Corp. 70,000 4,428
General Electric Co. 50,400 3,254
Matsushita Electric Industrial Co., Ltd. 3,500 59
Murata Manufacturing 1,200 49
Raytheon Co. 85,000 4,611
Sundstrand Corp. 110,000 5,981
Technip, S.A. 704 75
United Technologies Corp. 40,000 2,800
U.S. Industries 120,000 3,225
York International Corp. 50,000 2,281
-------------------------------------------------------------------------
30,219
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--10.9% (a)Clear Channel Communication 55,000 3,630
Dillard Department Stores 105,000 4,029
Evergreen Media Corp., convertible preferred 17,500 1,078
R.R. Donnelley & Sons Co. 184,000 6,003
Harcourt General 130,000 6,508
Hudson's Bay Co. 4,100 94
May Department Stores Co. 166,700 8,981
Meredith Corp. 45,000 1,533
J.C. Penney, Inc. 115,000 6,749
Sony Corp. 500 42
Time Warner, Inc. 85,000 4,903
(a)Toys R Us 150,000 5,109
-------------------------------------------------------------------------
48,659
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.4% Honda Motor Co., Ltd. 1,000 34
Stanley Works 148,500 6,274
-------------------------------------------------------------------------
6,308
</TABLE>
C-13
<PAGE> 214
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--11.9% CPC International 25,000 $ 2,475
Dial Corp. 185,000 3,122
General Mills, Inc. 45,000 2,970
Gillette Co. 30,000 2,672
H.J. Heinz Co. 100,000 4,644
International Flavors & Fragrances 145,000 7,014
Kimberly-Clark Corp. 90,000 4,674
(a)MGM Grand 70,000 3,071
McCormick & Co. 38,900 972
PepsiCo 130,000 4,786
Philip Morris Co. 53,000 2,100
Procter & Gamble Co. 39,000 2,652
Seagram Co. 90,000 3,032
(a)Tricon Global Restaurants, Inc. 13,000 394
Unilever N.V., ADR 78,000 4,163
Whitman Corp. 105,000 2,756
Wm. Wrigley Jr. Co. 26,400 1,911
-------------------------------------------------------------------------
53,408
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--7.6% AMOCO Corp. 25,000 2,292
Baker Hughes, Inc. 100,000 4,594
British Petroleum, PLC 6,504 96
Chevron Corp. 50,000 4,147
Exxon Corp. 55,000 3,379
MCN Corp., convertible preferred 40,000 2,215
Mobil Corp. 112,600 8,199
Petro-Canada 6,000 121
Unocal Corp. 161,000 6,641
(a)Western Atlas 25,000 2,155
-------------------------------------------------------------------------
33,839
- ----------------------------------------------------------------------------------------------------------------------
FINANCE--19.0% American Express Co. 42,000 3,276
American General Corp. 175,000 8,925
Banc One Corp. 86,000 4,483
Banco Santander, S.A. 1,950 55
BankAmerica Corp. 21,000 1,502
Bank of Ireland 11,484 145
Beneficial Corp. 80,000 6,135
CITIC Pacific, Ltd. 11,000 53
Federal National Mortgage Association 55,000 2,664
First Union Corp. 110,900 5,441
Fleet Financial Group, Inc. 60,000 3,859
General Growth Properties, Inc. 70,000 2,415
General RE Corp. 15,000 2,958
Highwood Properties, Inc. 110,000 3,795
HSBC Holdings, PLC 1,600 36
ING Groep, N.V. 3,010 126
Jefferson-Pilot Corp.
common stock 80,000 6,185
convertible preferred 9,000 954
KeyCorp 50,000 3,059
Mid Ocean, Ltd. 68,000 4,412
Morgan Stanley, Dean Witter Discover & Co. 85,000 4,165
NationsBank 70,000 4,191
PNC Bank Corp. 100,000 4,750
Safeco Corp. 130,000 6,191
Summit Bancorp 30,000 1,281
U.S. Bancorp 17,500 1,780
Wilmington Trust Corp. 40,000 2,230
-------------------------------------------------------------------------
85,066
</TABLE>
C-14
<PAGE> 215
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--11.3% ALZA Corp. 80,000 $ 2,085
Abbott Laboratories 90,000 5,518
American Home Products 140,000 10,378
Baxter International, Inc. 85,000 3,931
Bristol-Myers Squibb Co. 80,000 7,020
(a)British Bio-Technology Group 17,000 29
(a)Crescendo Pharmaceutical Corp. 6,181 70
(a)HealthCare COMPARE Corp. 36,000 1,935
(a)HEALTHSOUTH Corp. 155,000 3,962
McKesson Corp.
common stock 27,500 2,951
convertible preferred 30,000 2,280
Perkin-Elmer Corp. 32,000 2,000
Roche Holdings, A.G., rights 9 79
(a)Tenet Healthcare Corp. 153,200 4,682
United Healthcare Corp. 75,000 3,473
-------------------------------------------------------------------------
50,393
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--12.2% AMP, Inc. 122,500 5,513
(a)Analog Devices, Inc. 100,000 3,056
(a)Cadence Design Systems 30,600 1,629
(a)Cisco Systems 55,000 4,512
Computer Associates International 27,000 2,013
(a)Computer Sciences Corp. 30,000 2,128
Diebold Corp. 95,000 4,186
L.M. Ericsson Telephone Co., "B" 2,459 108
(a)Gartner Group 55,000 1,554
Harris Corp. 124,200 5,418
Hewlett-Packard Co. 90,000 5,552
Intel Corp. 14,000 1,078
International Business Machines Corp. 60,000 5,884
(a)National Semiconductor Corp. 60,000 2,160
(a)Oracle Corp. 79,000 2,827
Pitney Bowes 50,000 3,966
(a)Sun Microsystems 80,400 2,754
-------------------------------------------------------------------------
54,338
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--4.5% CSX Corp. 155,000 8,477
Canadian Pacific, Ltd. 175,000 5,217
Norfolk Southern Corp. 210,000 6,746
-------------------------------------------------------------------------
20,440
- ----------------------------------------------------------------------------------------------------------------------
UTILITIES--4.4% AirTouch Communications, convertible
preferred 40,000 2,400
Ameritech Corp. 77,000 5,005
AT &T 80,000 3,915
SBC Communications, Inc. 131,000 8,335
(a)Telecom Italia, SpA 6,450 40
Telefonica de Espana, S.A. 3,100 85
-------------------------------------------------------------------------
19,780
-------------------------------------------------------------------------
TOTAL COMMON STOCKS--92.8%
(Cost: $380,687) 414,842
-------------------------------------------------------------------------
</TABLE>
C-15
<PAGE> 216
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
CONVERTIBLE CORPORATE OBLIGATIONS AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--.7% ALZA Corp., 5.00%, 2006 $ 3,000 $ 2,895
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.6% Kent Electronics Corp., 4.50%, 2004 2,940 2,800
-------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS--1.3%
(Cost: $5,975) 5,695
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.89% to 5.82%
INSTRUMENTS--7.0% Due--November and December, 1997
American Honda Finance Corp. 6,500 6,480
ConAgra 12,500 12,462
Sanwa Business Credit Corp. 4,600 4,597
Other 7,700 7,695
-------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--7.0%
(Cost: $31,234) 31,234
-------------------------------------------------------------------------
TOTAL INVESTMENTS--101.1%
(Cost: $417,896) 451,771
-------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(1.1%) (4,880)
-------------------------------------------------------------------------
NET ASSETS--100% $446,891
-------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $417,896,000 for federal income tax purposes
at October 31, 1997, the gross unrealized appreciation was $39,184,000, the
gross unrealized depreciation was $5,309,000 and the net unrealized appreciation
on investments was $33,875,000.
See accompanying Notes to Financial Statements.
C-16
<PAGE> 217
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER BLUE CHIP FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Blue Chip Fund as of October
31, 1997, the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Blue Chip Fund at October 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the fiscal periods
since 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1997
C-17
<PAGE> 218
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $417,896) $451,771
- ------------------------------------------------------------------------
Receivable for:
Investments sold 20,592
- ------------------------------------------------------------------------
Fund shares sold 2,238
- ------------------------------------------------------------------------
Dividends and interest 654
- ------------------------------------------------------------------------
TOTAL ASSETS 475,255
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 1,237
- ------------------------------------------------------------------------
Payable for:
Investments purchased 26,004
- ------------------------------------------------------------------------
Fund shares redeemed 497
- ------------------------------------------------------------------------
Management fee 219
- ------------------------------------------------------------------------
Distribution services fee 95
- ------------------------------------------------------------------------
Administrative services fee 88
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 194
- ------------------------------------------------------------------------
Trustees' fees 30
- ------------------------------------------------------------------------
Total liabilities 28,364
- ------------------------------------------------------------------------
NET ASSETS $446,891
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $354,029
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 57,107
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 33,875
- ------------------------------------------------------------------------
Undistributed net investment income 1,880
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $446,891
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($307,726 / 17,403 shares outstanding) $17.68
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $18.76
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($123,449 / 7,011 shares outstanding) $17.61
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($10,609 / 600 shares outstanding) $17.69
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($5,107 / 288 shares outstanding) $17.72
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
C-18
<PAGE> 219
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 6,320
- -----------------------------------------------------------------------
Interest 1,687
- -----------------------------------------------------------------------
Total investment income 8,007
- -----------------------------------------------------------------------
Expenses:
Management fee 2,018
- -----------------------------------------------------------------------
Distribution services fee 708
- -----------------------------------------------------------------------
Administrative services fee 834
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,325
- -----------------------------------------------------------------------
Professional fees 40
- -----------------------------------------------------------------------
Reports to shareholders 85
- -----------------------------------------------------------------------
Trustees' fees and other 19
- -----------------------------------------------------------------------
Total expenses 5,029
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 2,978
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 56,879
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 14,551
- -----------------------------------------------------------------------
Net gain on investments 71,430
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $74,408
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
Net investment income $ 2,978 2,620
- -------------------------------------------------------------------------------------------
Net realized gain 56,879 48,809
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 14,551 (3,487)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 74,408 47,942
- -------------------------------------------------------------------------------------------
Net equalization credits 209 36
- -------------------------------------------------------------------------------------------
Distribution from net investment income (2,968) (2,271)
- -------------------------------------------------------------------------------------------
Distribution from net realized gain (48,419) (13,966)
- -------------------------------------------------------------------------------------------
Total dividends to shareholders (51,387) (16,237)
- -------------------------------------------------------------------------------------------
Net increase from capital share transactions 167,489 56,165
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 190,719 87,906
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 256,172 168,266
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$1,880 and $1,663, respectively) $446,891 256,172
- -------------------------------------------------------------------------------------------
</TABLE>
C-19
<PAGE> 220
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
DESCRIPTION OF THE
FUND Kemper Blue Chip Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2
SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class
C- 20
<PAGE> 221
NOTES TO FINANCIAL STATEMENTS
by dividing the Fund's net assets attributable to
that class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income
semi-annually and net realized capital gains
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $2,018,000 for the
year ended October 31, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund and is paid by ZKI for its
services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI). Underwriting commissions paid in
connection with the distribution of Class A shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS ALLOWED BY ZKDI
RETAINED BY ----------------------------
ZKDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1997 $124,000 1,101,000 7,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares, and the CDSC received
in connection with the redemption of such shares
are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC COMMISSIONS AND
RECEIVED BY DISTRIBUTION FEES PAID
ZKDI BY ZKDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended October 31, 1997 $839,000 1,957,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in
C- 21
<PAGE> 222
NOTES TO FINANCIAL STATEMENTS
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO ZKDI ZKDI TO FIRMS
----------------- -------------
<S> <C> <C>
Year ended October 31, 1997 $834,000 886,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $959,000 for the year ended October 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $17,000 to independent trustees.
- --------------------------------------------------------------------------------
4
INVESTMENT
TRANSACTIONS For the year ended October 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $747,839
Proceeds from sales 639,687
- --------------------------------------------------------------------------------
5
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------1997--------- --------1996--------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
Class A 6,618 $112,272 2,996 $46,627
------------------------------------------------------------------------------
Class B 5,184 87,500 3,136 49,419
------------------------------------------------------------------------------
Class C 580 9,803 168 2,667
------------------------------------------------------------------------------
Class I 407 7,030 3 39
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 2,615 38,297 976 13,750
------------------------------------------------------------------------------
Class B 716 10,448 110 1,543
------------------------------------------------------------------------------
Class C 40 586 6 80
------------------------------------------------------------------------------
Class I 1 23 -- --
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (3,646) (61,114) (2,753) (42,327)
------------------------------------------------------------------------------
Class B (1,845) (31,843) (956) (14,819)
------------------------------------------------------------------------------
Class C (201) (3,375) (51) (785)
------------------------------------------------------------------------------
Class I (121) (2,138) (2) (29)
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 209 3,585 70 1,055
------------------------------------------------------------------------------
Class B (210) (3,585) (70) (1,055)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE TRANSACTIONS $167,489 $56,165
------------------------------------------------------------------------------
</TABLE>
C-22
<PAGE> 223
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
CLASS A
------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of year $17.14 14.87 12.33 13.88 12.72
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .22 .19 .19 .18
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.70 3.45 2.57 (.71) 1.13
- ----------------------------------------------------------------------------------------------
Total from investment operations 3.88 3.67 2.76 (.52) 1.31
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .20 .20 .19 .15
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain 3.13 1.20 .02 .84 --
- ----------------------------------------------------------------------------------------------
Total dividends 3.34 1.40 .22 1.03 .15
- ----------------------------------------------------------------------------------------------
Net asset value, end of year $17.68 17.14 14.87 12.33 13.88
- ----------------------------------------------------------------------------------------------
TOTAL RETURN 26.78% 26.72 22.74 (3.82) 10.35
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.19% 1.26 1.30 1.48 1.25
- ----------------------------------------------------------------------------------------------
Net investment income 1.07% 1.40 1.47 1.50 1.28
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
CLASS B
------------------------------------------
YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.09 14.82 12.29 12.30
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .10 .09 .06
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.67 3.45 2.56 (.01)
- ----------------------------------------------------------------------------------------------
Total from investment operations 3.71 3.55 2.65 .05
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .06 .08 .10 .06
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain 3.13 1.20 .02 --
- ----------------------------------------------------------------------------------------------
Total dividends 3.19 1.28 .12 .06
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $17.61 17.09 14.82 12.29
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.62% 25.82 21.76 .42
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses 2.06% 2.08 2.06 2.43
- ----------------------------------------------------------------------------------------------
Net investment income .20% .58 .71 .33
- ----------------------------------------------------------------------------------------------
</TABLE>
C- 23
<PAGE> 224
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------ -----------------------------------
CLASS C CLASS I
------------------------------------ -----------------------------------
YEAR ENDED MAY 31, TO YEAR ENDED NOVEMBER 22,1995
OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
------------------------------------ -----------------------------------
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.15 14.88 12.32 12.30 17.18 15.30
- ---------------------------------------------------------------------------------- -----------------------------------
Income from investment operations:
Net investment income .03 .10 .07 .09 .32 .36
- ---------------------------------------------------------------------------------- -----------------------------------
Net realized and unrealized gain (loss) 3.71 3.45 2.62 (.01) 3.58 2.96
- ---------------------------------------------------------------------------------- -----------------------------------
Total from investment operations 3.74 3.55 2.69 .08 3.90 3.32
- ---------------------------------------------------------------------------------- -----------------------------------
Less dividends:
Distribution from net investment income .07 .08 .11 .06 .23 .24
- ---------------------------------------------------------------------------------- -----------------------------------
Distribution from net realized gain 3.13 1.20 .02 -- 3.13 1.20
- ---------------------------------------------------------------------------------- -----------------------------------
Total dividends 3.20 1.28 .13 .06 3.36 1.44
- ---------------------------------------------------------------------------------- -----------------------------------
Net asset value, end of period $17.69 17.15 14.88 12.32 17.72 17.18
- ---------------------------------------------------------------------------------- -----------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.71% 25.75 22.04 .67 26.89 21.89
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------------------------
Expenses 2.00% 2.05 2.01 2.33 .70 1.31
- ---------------------------------------------------------------------------------- -----------------------------------
Net investment income .26% .61 .76 .43 1.56 1.33
- ---------------------------------------------------------------------------------- -----------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $446,891 256,172 168,266 153,172 196,327
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 183% 166 117 131 222
- ------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the years
ended October 31, 1997 and 1996 were $.0593 and $.0587, respectively.
NOTE: Total return does not reflect the effect of any sales charges.
C- 24
<PAGE> 225
FINANCIAL STATEMENTS FOR Q.E. FUND EXHIBIT D
- ----------------------------------
PORTFOLIO OF INVESTMENTS
KEMPER QUANTITATIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--1.0%
Ecolab 5,000 $ 154
--------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.4%
American Standard Companies 3,500 169
General Electric Co. 3,900 325
Tyco International, Ltd. 1,500 83
(a)U.S. Filter Corp. 4,600 140
(a)USA Waste Services 2,537 120
--------------------------------------------------------------------
837
- ---------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--15.8%
(a)Apollo Group, Inc. 2,250 72
(a)AutoZone 4,900 163
Carnival Corp. 4,500 305
(a)Consolidated Stores Corp. 3,000 115
Deluxe Corp. 2,000 67
Dillard Department Stores 1,700 72
(a)Jones Apparel Group 2,000 127
Lowe's Companies, Inc. 2,000 158
(a)MGM Grand 6,800 226
NIKE 4,850 223
(a)Nine West Group 9,000 254
(a)Payless ShoeSource, Inc. 2,000 140
(a)Tommy Hilfiger Corp. 4,000 269
Walt Disney Co. 2,100 238
--------------------------------------------------------------------
2,429
- ---------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.6%
HON Industries, Inc. 4,500 144
Magna International, Inc., "A" 1,500 106
--------------------------------------------------------------------
250
- ---------------------------------------------------------------------------------------------------
CONSUMER STAPLES--12.4%
American Greetings Corp. 5,400 256
Avon Products 2,000 164
ConAgra, Inc. 3,000 88
General Nutrition 4,000 126
Newell Co. 3,000 145
PepsiCo 4,000 163
Procter & Gamble Co. 2,900 243
(a)Smithfield Foods, Inc. 4,000 108
Tupperware Corp. 3,000 81
Universal Corp. 6,600 248
UST, Inc. 10,800 288
--------------------------------------------------------------------
1,910
- ---------------------------------------------------------------------------------------------------
ENERGY--3.9%
Cooper Cameron Corp. 3,700 220
R & B Falcon Corp. 2,500 72
(a)Rowan Companies, Inc. 5,500 141
Smith International 3,300 162
--------------------------------------------------------------------
595
- ---------------------------------------------------------------------------------------------------
FINANCE--13.6%
Ambac Financial Group, Inc. 1,500 82
American General Corp. 2,000 134
BB & T Corp. 2,000 132
Bear Stearns Cos. 3,000 163
Community First Bankshares 6,000 146
Federal National Mortgage Association 3,600 216
Hibernia Corp. 9,000 189
ITT Hartford Group 700 77
Jefferson-Pilot Corp. 2,550 146
MGIC Investment Corp. 1,800 108
Merrill Lynch & Co. 1,200 107
Morgan Stanley, Dean Witter, Discover & Co. 2,500 195
</TABLE>
D-1
<PAGE> 226
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NationsBank 2,000 $ 151
Republic NY Corp. 300 39
Safeco Corp. 1,100 51
Torchmark Corp. 1,500 64
Travelers Group 1,500 91
--------------------------------------------------------------------
2,091
- ---------------------------------------------------------------------------------------------------
HEALTH CARE--17.4%
(a)ALZA Corp. 9,200 445
American Home Products Corp. 3,800 184
Astra AB, ADR 11,466 232
Bergen Brunswig Corp. 5,000 207
First Health Group Corp. 3,700 210
McKesson Corp. 3,000 234
Merck & Co. 2,900 339
R.P. Scherer Corp. 2,200 182
Schering-Plough Corp. 2,000 167
Stryker Corp. 6,000 245
United Healthcare Corp. 3,600 230
--------------------------------------------------------------------
2,675
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--20.1%
Analog Devices 3,000 74
(a)Applied Materials, Inc. 7,500 240
Bay Networks 4,500 125
Cadence Design Systems 4,500 159
(a)Cisco Systems 6,300 476
Compaq Computer Corp. 12,400 339
(a)Computer Sciences Corp. 2,000 104
Linear Technology Corp. 2,100 147
(a)Microchip Technology 5,400 132
National Semiconductor Corp. 7,500 122
(a)Novellus Systems 3,500 132
Parametric Technology Corp. 4,400 135
(a)Quantum Corp. 11,000 241
Reynolds & Reynolds Co. 8,800 184
(a)Sun Microsystems 6,600 264
Teradyne, Inc. 7,000 215
--------------------------------------------------------------------
3,089
- ---------------------------------------------------------------------------------------------------
UTILITIES--3.2%
(a)WorldCom, Inc. 10,700 487
--------------------------------------------------------------------
TOTAL COMMON STOCKS--94.4%
(Cost: $12,228) 14,517
--------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
MONEY MARKET PRINCIPAL
INSTRUMENTS--2.3% AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
Yield--4.74% to 5.57%
Due--June and July 1998
(Cost: $350) $350 350
------------------------------------------------------------------
TOTAL INVESTMENTS--96.7%
(Cost: $12,578) 14,867
------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--3.3% 513
------------------------------------------------------------------
NET ASSETS--100% $15,380
------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $12,578,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $2,737,000, the gross
unrealized depreciation was $448,000 and the net unrealized appreciation on
investments was $2,289,000.
See accompanying Notes to Financial Statements.
D-2
<PAGE> 227
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------
ASSETS
- -------------------------------------------------
Investments, at value
(Cost: $12,578) $14,867
- -------------------------------------------------
Cash 457
- -------------------------------------------------
Receivable for:
Investments sold 586
- -------------------------------------------------
Fund shares sold 25
- -------------------------------------------------
Dividends 10
- -------------------------------------------------
TOTAL ASSETS 15,945
- -------------------------------------------------
- -------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------
Payable for:
Investments purchased 535
- -------------------------------------------------
Management fee 7
- -------------------------------------------------
Distribution services fee 4
- -------------------------------------------------
Administrative services fee 1
- -------------------------------------------------
Trustees' fees and other 18
- -------------------------------------------------
Total liabilities 565
- -------------------------------------------------
NET ASSETS $15,380
- -------------------------------------------------
- -------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------
Paid-in capital $12,891
- -------------------------------------------------
Undistributed net realized gain on
investments 200
- -------------------------------------------------
Net unrealized appreciation on
investments 2,289
- -------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $15,380
- -------------------------------------------------
- -------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share ($6,250/450 shares
outstanding) $13.88
- -------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering
price) $14.73
- -------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($4,517/332 shares
outstanding) $13.60
- -------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($1,585/116 shares
outstanding) $13.63
- -------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
per share
($3,028/217 shares outstanding) $13.94
- -------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
D-3
<PAGE> 228
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------
Dividends $ 67
- ------------------------------------------------
Interest 22
- ------------------------------------------------
Total investment income 89
- ------------------------------------------------
Expenses:
Management fee 40
- ------------------------------------------------
Distribution services fee 19
- ------------------------------------------------
Administrative services fee 3
- ------------------------------------------------
Custodian and transfer agent fees and
related expenses 16
- ------------------------------------------------
Professional fees 6
- ------------------------------------------------
Reports to shareholders 20
- ------------------------------------------------
Registration fees 2
- ------------------------------------------------
Trustees' fees and other 10
- ------------------------------------------------
Total expenses 116
- ------------------------------------------------
NET INVESTMENT LOSS (27)
- ------------------------------------------------
- ------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------
Net realized gain on sales of
investments 48
- ------------------------------------------------
Net realized gain from futures
transactions 152
- ------------------------------------------------
Net realized gain 200
- ------------------------------------------------
Change in net unrealized appreciation
on investments 1,177
- ------------------------------------------------
Net gain on investments 1,377
- ------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,350
- ------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
- ---------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (27) (46)
- ---------------------------------------------------------------------------
Net realized gain 200 501
- ---------------------------------------------------------------------------
Change in net unrealized appreciation 1,177 680
- ---------------------------------------------------------------------------
Net increase in net assets resulting
from operations 1,350 1,135
- ---------------------------------------------------------------------------
Distribution from net realized gain (466) (78)
- ---------------------------------------------------------------------------
Net increase from capital share
transactions 3,279 5,564
- ---------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 4,163 6,621
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------
Beginning of period 11,217 4,596
- ---------------------------------------------------------------------------
END OF PERIOD $ 15,380 11,217
- ---------------------------------------------------------------------------
</TABLE>
D-4
<PAGE> 229
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Quantitative Equity Fund is an open-end
management investment company organized as a
business trust under the laws of Massachusetts. The
Fund currently offers four classes of shares. Class
A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m.
D-5
<PAGE> 230
NOTES TO FINANCIAL STATEMENTS
Chicago time or the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended May 31, 1998.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a management fee at an
annual rate of .58% of the first $250 million of
average daily net assets declining to .42% of
average daily net assets in excess of $12.5
billion. The Fund incurred a management fee of
$40,000 for the six months ended May 31, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 3,000 28,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 21,000 56,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Six months ended May 31, 1998 $ 3,000 10,000
</TABLE>
D-6
<PAGE> 231
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $9,000
for the six months ended May 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the six months ended May 31,
1998, the Fund made no payments to its officers and
incurred trustees' fees of $2,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $7,023
Proceeds from sales 4,943
D-7
<PAGE> 232
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS
The following table summarizes the activity in
capital shares of the Fund (in thousands):
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1998 1997
-------------- ---------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------
SHARES SOLD
- ------------------------------------------------------------------------
Class A 183 $2,494 140 $1,750
- ------------------------------------------------------------------------
Class B 128 1,708 137 1,715
- ------------------------------------------------------------------------
Class C 20 264 55 647
- ------------------------------------------------------------------------
Class I 75 1,005 450 5,443
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
- ------------------------------------------------------------------------
Class A 12 154 3 30
- ------------------------------------------------------------------------
Class B 9 114 2 19
- ------------------------------------------------------------------------
Class C 4 53 1 14
- ------------------------------------------------------------------------
Class I 11 137 1 15
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
SHARES REDEEMED
- ------------------------------------------------------------------------
Class A (37) (502) (11) (147)
- ------------------------------------------------------------------------
Class B (16) (217) (27) (341)
- ------------------------------------------------------------------------
Class C (8) (101) (36) (425)
- ------------------------------------------------------------------------
Class I (131) (1,830) (265) (3,156)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
CONVERSION OF SHARES
- ------------------------------------------------------------------------
Class A 2 26 1 12
- ------------------------------------------------------------------------
Class B (2) (26) (1) (12)
- ------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $3,279 $5,564
- ------------------------------------------------------------------------
D-8
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the fund and the broker as the market value
of the futures contract fluctuates. At May 31,
1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
was $50,000. The Fund also had liquid assets in
excess of the face amount of open futures
contracts. At May 31, 1998, the following futures
contracts were owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 5/31/98
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $542,000 Long June '98 $3,000
--------------------------------------------------------------------------------
</TABLE>
D-9
<PAGE> 234
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------ -------------------------------------------
CLASS A CLASS B
------------------------------------------ -------------------------------------------
SIX MONTHS YEAR FEBRUARY 15 SIX MONTHS YEAR FEBRUARY 15
ENDED ENDED TO ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30, MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.03 11.12 9.50 12.84 11.04 9.50
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.03) -- (.02) (.08) (.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.38 2.13 1.62 1.31 2.07 1.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.38 2.10 1.62 1.29 1.99 1.54
- ----------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized
gain .53 .19 -- .53 .19 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.88 13.03 11.12 13.60 12.84 11.04
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.09% 19.25 17.05 10.54 18.37 16.21
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses 1.48% 1.45 1.48 2.28 2.27 2.32
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.21)% (.36) (.16) (1.01) (1.18) (1.00)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------ -------------------------------------------
CLASS C CLASS I
------------------------------------------ -------------------------------------------
SIX MONTHS YEAR FEBRUARY 15 SIX MONTHS YEAR SEPTEMBER 9
ENDED ENDED TO ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30, MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.86 11.05 9.50 13.08 11.14 9.67
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) (.11) (.04) .01 (.01) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.33 2.11 1.59 1.38 2.14 1.47
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.30 2.00 1.55 1.39 2.13 1.47
- ----------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized
gain .53 .19 -- .53 .19 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.63 12.86 11.05 13.94 13.08 11.14
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.60% 18.45 16.32 11.13 19.48 15.20
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses 2.14% 2.16 2.33 1.12 1.26 1.08
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.87)% (1.07) (1.01) .15 (.17) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------
SIX MONTHS YEAR FEBRUARY 15
ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets at end of period (in
thousands) $ 15,380 11,217 4,596
- ------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 68% 84 72
- ------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Data for
the period ended May 31, 1998 is unaudited.
(a) The investment manager agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund for the period ended November
30, 1996. Absent this waiver, the ratios of expenses to average net assets
would have increased and the ratios of net investment income to average net
assets would have decreased for the period ended November 30, 1996 by the
following amounts: for Class A, 0.78%, for Class B, 0.83%, for Class C,
0.79% and for Class I, 1.15%.
D-10
<PAGE> 235
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
KEMPER QUANTITATIVE EQUITY FUND
Portfolio of Investments at November 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Number
of
Common stocks shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--1.8%
Crown Cork & Seal Co. 2,000 $ 98
Ferro Corp. 2,700 103
--------------------------------------------------------------------
201
- ---------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.1%
B.F. Goodrich Co. 2,300 102
Emerson Electric Co. 800 44
General Electric Co. 3,400 251
(a)U.S. Filter Corp. 4,600 144
(a)USA Waste Services 4,305 142
--------------------------------------------------------------------
683
- ---------------------------------------------------------------------------------------------------
COMMUNICATIONS--6.2%
(a)3Com Corp. 7,375 267
(a)Ascend Communications, Inc. 3,200 80
(a)Cisco Systems 4,000 345
--------------------------------------------------------------------
692
- ---------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--13.7%
(a)AutoZone 4,900 147
Carnival Corp. 4,500 243
(a)Consolidated Stores Corp. 3,000 146
Home Depot 800 45
(a)MGM Grand 5,000 196
NIKE 3,350 163
Sears, Roebuck & Co. 2,100 96
(a)Tommy Hilfiger Corp. 5,000 196
Tricon Global Restaurants, Inc. 350 12
Walt Disney Co. 3,100 294
--------------------------------------------------------------------
1,538
- ---------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.4%
Leggett & Platt Inc. 1,500 64
Magna International, Inc., "A" 1,500 95
--------------------------------------------------------------------
159
- ---------------------------------------------------------------------------------------------------
CONSUMER STAPLES--15.2%
American Greetings Corp. 5,400 198
Clorox Co. 1,000 78
Dillard Department Stores 1,200 44
Kimberly-Clark Corp. 1,100 57
McDonald's Corp. 2,700 131
Newell Co. 3,500 143
PepsiCo 4,000 147
Philip Morris Cos. 10,300 448
Procter & Gamble Co. 1,600 122
UST, Inc. 10,800 333
--------------------------------------------------------------------
1,701
- ---------------------------------------------------------------------------------------------------
FINANCE--12.8%
American General Corp. 2,000 108
Banc One Corp. 1,000 51
BB & T Corp. 1,500 82
Bear Stearns Cos. 3,000 125
Dean Witter Discover 2,500 136
Federal National Mortgage Association 3,600 190
First Chicago NBD Corp. 1,500 117
ITT Hartford Group 700 59
Jefferson-Pilot Corp. 1,700 130
Merrill Lynch & Co. 1,200 84
MGIC Investment Corp. 1,800 105
NationsBank 2,000 120
Republic NY Corp. 300 33
Safeco Corp. 1,100 54
Torchmark Corp. 1,000 41
--------------------------------------------------------------------
1,435
</TABLE>
D-11
<PAGE> 236
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Number
of
Common stocks shares Value
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--17.8%
Abbott Laboratories 3,300 $ 215
ALZA Corp. 9,200 246
American Home Products Corp. 2,400 168
Astra AB, ADR 11,466 195
(a)Biogen 3,200 112
Crescendo Pharmaceuticals Corp. 350 4
(a)HealthCare COMPARE Corp. 3,700 193
Johnson & Johnson 2,000 126
Mallinckrodt Group 5,300 196
Merck & Co. 2,900 274
Novartis, ADR 1,000 80
United Healthcare Corp. 3,600 187
--------------------------------------------------------------------
1,996
- ---------------------------------------------------------------------------------------------------
PERSONAL COMPUTING--5.0%
(a)Compaq Computer Corp. 4,300 268
(a)Quantum Corp. 4,000 107
(a)Seagate Technology 4,000 91
(a)Western Digital Corp. 4,600 93
--------------------------------------------------------------------
559
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--16.1%
(a)Applied Materials, Inc. 5,000 165
(a)Atmel Corp. 5,000 112
(a)Computer Sciences Corp. 3,000 238
Diebold 2,900 134
Intel Corp. 5,500 427
Linear Technology Corp. 1,200 77
(a)Microchip Technology 1,400 49
(a)Novellus Systems 2,700 102
(a)Parametric Technology Corp. 2,200 111
Reynolds & Reynolds Co. 8,800 168
(a)Sun Microsystems 6,100 220
--------------------------------------------------------------------
1,803
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION--.9%
Canadian National Railway Co. 2,000 103
--------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UTILITIES--3.0%
(a)WorldCom, Inc. 10,700 342
--------------------------------------------------------------------
TOTAL COMMON STOCKS--100%
(Cost: $10,100) 11,212
--------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Principal
amount Value
- ------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENT--.2%
Yield--5.20%
Due--January 1998
(Cost: $25) $25 25
-----------------------------------------------------------------
TOTAL INVESTMENTS--100.2%
(Cost: $10,125) 11,237
-----------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.2)% (20)
-----------------------------------------------------------------
NET ASSETS--100% $11,217
-----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $10,125,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation was $1,416,000, the
gross unrealized depreciation was $304,000 and the net unrealized appreciation
on investments was $1,112,000.
See accompanying Notes to Financial Statements.
D-12
<PAGE> 237
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER QUANTITATIVE EQUITY FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Quantitative Equity Fund as of
November 30, 1997, and the related statement of operations for the year then
ended and statement of changes in net assets and the financial highlights for
the year then ended and for the period from February 15, 1996 (commencement of
operations) to November 30, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Quantitative Equity Fund at November 30, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
referred to above, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
D-13
<PAGE> 238
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------
ASSETS
- -------------------------------------------------
<S> <C>
Investments, at value
(Cost: $10,125) $11,237
- -------------------------------------------------
Cash 48
- -------------------------------------------------
Receivable for:
Fund shares sold 7
- -------------------------------------------------
Dividends 7
- -------------------------------------------------
TOTAL ASSETS 11,299
- -------------------------------------------------
- -------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------
Payable for:
Fund shares redeemed 25
- -------------------------------------------------
Investments purchased 21
- -------------------------------------------------
Management fee 5
- -------------------------------------------------
Distribution services fee 2
- -------------------------------------------------
Administrative services fee 1
- -------------------------------------------------
Custodian and transfer agent fees and
related expenses 9
- -------------------------------------------------
Trustees' fees and other 19
- -------------------------------------------------
Total liabilities 82
- -------------------------------------------------
NET ASSETS $11,217
- -------------------------------------------------
- -------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------
Paid-in capital $ 9,639
- -------------------------------------------------
Undistributed net realized gain on
investments 466
- -------------------------------------------------
Net unrealized appreciation on
investments 1,112
- -------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $11,217
- -------------------------------------------------
- -------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share
($3,780 DIVIDED BY 290 shares
outstanding) $13.03
- -------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering
price) $13.82
- -------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share
($2,730 DIVIDED BY 213 shares
outstanding) $12.84
- -------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share
($1,280 DIVIDED BY 100 shares
outstanding) $12.86
- -------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
per share
($3,427 DIVIDED BY 262 shares
outstanding) $13.08
- -------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
D-14
<PAGE> 239
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------
<S> <C>
Dividends $ 81
- ------------------------------------------------
Interest 5
- ------------------------------------------------
Total investment income 86
- ------------------------------------------------
Expenses:
Management fee 46
- ------------------------------------------------
Distribution services fee 21
- ------------------------------------------------
Administrative services fee 4
- ------------------------------------------------
Custodian and transfer agent fees and
related expenses 21
- ------------------------------------------------
Reports to shareholders 17
- ------------------------------------------------
Professional fees 16
- ------------------------------------------------
Registration fees 2
- ------------------------------------------------
Trustees' fees and other 5
- ------------------------------------------------
Total expenses 132
- ------------------------------------------------
NET INVESTMENT LOSS (46)
- ------------------------------------------------
- ------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------
Net realized gain on sales of
investments 501
- ------------------------------------------------
Change in net unrealized appreciation
on investments 680
- ------------------------------------------------
Net gain on investments 1,181
- ------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,135
- ------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 15
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996
- --------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (46) (11)
- --------------------------------------------------------------------
Net realized gain 501 88
- --------------------------------------------------------------------
Change in net unrealized appreciation 680 432
- --------------------------------------------------------------------
Net increase in net assets resulting
from operations 1,135 509
- --------------------------------------------------------------------
Net equalization credits -- 4
- --------------------------------------------------------------------
Distribution from net realized gain (78) --
- --------------------------------------------------------------------
Net increase from capital share
transactions 5,564 3,983
- --------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 6,621 4,496
- --------------------------------------------------------------------
- --------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------
Beginning of period 4,596 100
- --------------------------------------------------------------------
END OF PERIOD $11,217 4,596
- --------------------------------------------------------------------
</TABLE>
D-15
<PAGE> 240
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND
Kemper Quantitative Equity Fund is an open-end
management investment company organized as a
business trust under the laws of Massachusetts. The
Fund commenced operations on February 15, 1996. The
Fund currently offers four classes of shares. Class
A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES
INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the
D-16
<PAGE> 241
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
net asset value per share is determined as of the
earlier of 3:00 p.m. Chicago time or the close of
the Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES
INVESTMENT MANAGER COMBINATION. Zurich Insurance
Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the
names of the Fund's principal underwriter and
shareholder service agent were changed to Kemper
Distributors, Inc. (KDI) and Kemper Service Company
(KSvC), respectively.
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper and pays a management
fee at an annual rate of .58% of the first $250
million of average daily net assets declining to
.42% of average daily net assets in excess of $12.5
billion. The Fund incurred a management fee of
$46,000 for the year ended November 30, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Year ended November 30, 1997 $ 2,000 18,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution
D-17
<PAGE> 242
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
fees, CDSC and commissions related to Class B and
Class C shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended November 30, 1997 $ 21,000 42,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Year ended November 30, 1997 $ 4,000 7,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $10,000 for the year ended
November 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1997, the Fund made no payments to its officers and
incurred trustees' fees of $5,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS
For the year ended November 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $12,349
Proceeds from sales 6,900
</TABLE>
D-18
<PAGE> 243
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS
The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 15
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
SHARES SOLD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 140 $1,750 162 $1,584
- -------------------------------------------------------------------------------------------------
Class B 137 1,715 103 1,004
- -------------------------------------------------------------------------------------------------
Class C 55 647 76 756
- -------------------------------------------------------------------------------------------------
Class I 450 5,443 139 1,428
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
- -------------------------------------------------------------------------------------------------
Class A 3 30 -- --
- -------------------------------------------------------------------------------------------------
Class B 2 19 -- --
- -------------------------------------------------------------------------------------------------
Class C 1 14 -- --
- -------------------------------------------------------------------------------------------------
Class I 1 15 -- --
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SHARES REDEEMED
- -------------------------------------------------------------------------------------------------
Class A (11) (147) (9) (99)
- -------------------------------------------------------------------------------------------------
Class B (27) (341) (4) (35)
- -------------------------------------------------------------------------------------------------
Class C (36) (425) -- --
- -------------------------------------------------------------------------------------------------
Class I (265) (3,156) (63) (655)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
CONVERSION OF SHARES
- -------------------------------------------------------------------------------------------------
Class A 1 12 1 8
- -------------------------------------------------------------------------------------------------
Class B (1) (12) 1 (8)
- -------------------------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $5,564 $3,983
- -------------------------------------------------------------------------------------------------
</TABLE>
D-19
<PAGE> 244
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------- ---------------------------
CLASS A CLASS B
--------------------------- ---------------------------
FEBRUARY 15 FEBRUARY 15
YEAR ENDED TO YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.12 9.50 11.04 9.50
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.03) -- (.08) (.04)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.13 1.62 2.07 1.58
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.10 1.62 1.99 1.54
- -----------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain .19 -- .19 --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.03 11.12 12.84 11.04
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 19.25% 17.05 18.37 16.21
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(A)
- -----------------------------------------------------------------------------------------------------------------------
Expenses 1.45% 1.48 2.27 2.32
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss (.36)% (.16) (1.18) (1.00)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------- ---------------------------
CLASS C CLASS I
--------------------------- ---------------------------
FEBRUARY 15 SEPTEMBER 9
YEAR ENDED TO YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.05 9.50 11.14 9.67
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.11) (.04) (.01) --
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.11 1.59 2.14 1.47
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.00 1.55 2.13 1.47
- -----------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain .19 -- .19 --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.86 11.05 13.08 11.14
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.45% 16.32 19.48 15.20
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(A)
- -----------------------------------------------------------------------------------------------------------------------
Expenses 2.16% 2.33 1.26 1.08
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss (1.07)% (1.01) (.17) (.05)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 15
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period (in
thousands) $ 11,217 4,596
- --------------------------------------------------------------------
Portfolio turnover rate 84% 72
- --------------------------------------------------------------------
Average commission rates paid per share
on stock transactions $ .0597 .0555
- --------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges.
(a) The investment manager agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund for the period ended November
30, 1996. Absent this waiver, the ratios of expenses to average net assets
would have increased and the ratios of net investment income to average net
assets would have decreased for the period ended November 30, 1996 by the
following amounts: for Class A, 0.78%, for Class B, 0.83%, for Class C,
0.79% and for Class I, 1.15%.
D-20
