<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1997.
1933 ACT REGISTRATION NO. 33-18477
1940 ACT REGISTRATION NO. 811-5385
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 19 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
</TABLE>
------------------
KEMPER-DREMAN FUND, INC.
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (312) 537-7000
</TABLE>
Copies to:
<TABLE>
<S> <C>
Philip J. Collora, Vice President and Secretary Cathy G. O'Kelly
Kemper-Dreman Fund, Inc. David A. Sturms
222 South Riverside Plaza Vedder, Price, Kaufman & Kammholz
Chicago, Illinois 60606 222 North LaSalle Street
(Name and Address Chicago, Illinois 60601
of Agent for Service)
</TABLE>
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has elected to register an indefinite number of shares of common stock under the
Securities Act of 1933. On February 26, 1997, Registrant filed its notice
pursuant to Rule 24f-2 for its fiscal year ended December 31, 1996.
It is proposed that this filing will become effective (check appropriate
box)
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
_X__ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
_X__ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE> 2
KEMPER-DREMAN FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
<S> <C> <C>
PART A PROSPECTUS
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ Summary; Summary of Expenses; Supplement to
Prospectus
Item 3. Condensed Financial Information..... Financial Highlights; Supplement to Prospectus
Item 4. General Description of Registrant... Cover Page; Summary; Investment Objectives, Policies
and Risk Factors
Item 5. Management of the Fund.............. Summary; Investment Manager and Underwriter
Item 5A. Management's Discussion of Fund
Performance......................... Performance
Item 6. Capital Stock and Other
Securities.......................... Summary; Investment Manager and Underwriter; Net
Asset Value; Purchase of Shares; Capital Structure
Item 7. Purchase of Securities Being
Offered............................. Summary; Purchase of Shares
Item 8. Redemption or Repurchase............ Summary; Redemption or Repurchase of Shares
Item 9. Legal Proceedings................... Inapplicable
</TABLE>
<PAGE> 3
KEMPER VALUE FUND, INC.
SUPPLEMENT TO PROSPECTUS
DATED NOVEMBER 22, 1997
CLASS I SHARES
Kemper Contrarian Fund (the "Contrarian Fund"), Kemper-Dreman High Return
Equity Fund (the "High Return Equity Fund"), Kemper Small Cap Value Fund (the
"Small Cap Value Fund") and Kemper Mid Cap Value Fund (the "Mid Cap Value Fund")
(each a "Fund" and collectively, the "Funds") currently offer four classes of
shares to provide investors with different purchasing options. The Class A,
Class B and Class C shares are described in the prospectus; and Class I shares
are described in the prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Zurich Kemper Investments, Inc.
("ZKI"), and its affiliates; and (b) the following investment advisory clients
of ZKI and its investment advisory affiliates (including Zurich Investment
Management, Inc. and Zurich Kemper Value Advisors, Inc. (formerly named Dreman
Value Advisors, Inc.)) that invest at least $1 million in a Fund: (1)
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (3) endowment funds of unaffiliated non-profit organizations. Class I shares
currently are available for purchase only from Zurich Kemper Distributors, Inc.,
principal underwriter for the Funds. Share certificates are not available for
Class I shares.
The primary distinctions among the classes of each Fund's shares lie in
their initial and contingent deferred sales charge schedules and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will typically be
higher for Class I shares than for Class A, Class B and Class C shares.
The following information supplements the indicated sections of the
prospectus.
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO EACH FUND)
<TABLE>
<CAPTION>
CLASS I
-------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)........................................... None
Maximum Sales Charge on Reinvested Dividends................ None
Redemption Fees............................................. None
Exchange Fee................................................ None
Deferred Sales Charge (as a percentage of redemption
proceeds)................................................. None
</TABLE>
<PAGE> 4
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE MID CAP VALUE
FUND EQUITY FUND FUND FUND
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Management Fees (restated)...................... .75% .74% .75% .75%
12b-1 Fees...................................... None None None None
Other Expenses (restated)....................... .10% .14% .09% .30%
---- ---- ---- -----
Total Operating Expenses........................ .85% .88% .84% 1.05%
==== ==== ==== =====
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses Contrarian $ 9 $27 $47 $105
on a $1,000 investment, assuming High Return $ 9 $28 $49 $108
(1) 5% annual return and Small Cap Value $ 9 $27 $47 $104
(2) redemption at the end of each Mid Cap Value $11 $33 -- --
time period:
</TABLE>
-----------------
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly. See "Investment Manager and Underwriter" in the
prospectus for more information. Since no Class I shares had been issued for the
Contrarian Fund as of the fiscal year end, "Other Expenses" shown above are
estimates for that Fund. Since the Mid Cap Value Fund will commence operations
on or about September 9, 1997, the expenses shown for the Fund are estimates for
the current fiscal year, and the example is only provided for the one and three
year periods.
"Management Fees" and "Other Expenses" for the Contrarian, High Return Equity
and Small Cap Value Funds in the tables above have been restated to reflect
current fees.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED NOV. 1 TO
DECEMBER 31, 1996 DEC. 31, 1995
----------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.51 19.90
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .04
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain 5.70 2.03
- -----------------------------------------------------------------------------------------------------
Total from investment operations 6.24 2.07
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .06
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .73 .40
- -----------------------------------------------------------------------------------------------------
Total dividends 1.26 .46
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $26.49 21.51
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 29.36% 10.47
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .88% .47
- -----------------------------------------------------------------------------------------------------
Net investment income 2.45% 1.99
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .88% .85
- -----------------------------------------------------------------------------------------------------
Net investment income 2.45% 1.61
- -----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED NOV. 1
DECEMBER 31, 1996 TO DEC. 31, 1995
----------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.52 14.25
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .25 --
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.13 1.11
- -----------------------------------------------------------------------------------------------------
Total from investment operations 4.38 1.11
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .07 --
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .43 .84
- -----------------------------------------------------------------------------------------------------
Total dividends .50 .84
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $18.40 14.52
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 30.28% 8.03
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .84% .47
- -----------------------------------------------------------------------------------------------------
Net investment income 1.34% .28
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .84% .90
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) 1.34% (.15)
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating
expenses of the Funds through December 31, 1995. The "Other Ratios to
Average Net Assets" are computed without this expense waiver or
absorption.
For the Small Cap Value Fund, per share data for 1996 were determined
based on average shares outstanding.
No financial information is presented for Class I shares of the Contrarian Fund
since no Class I shares have been issued as of such Fund's fiscal year end. The
Mid Cap Value Fund (not shown above) will commence operations on or about
November 22, 1997.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of ZKI and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Zurich Money
Funds--Zurich Money Market Fund who have purchased shares because they are
participants in tax-exempt retirement plans of ZKI and its affiliates may
exchange their shares for Class I shares of "Kemper Mutual Funds" to the extent
that they are available through their plan. Exchanges will be made at the
relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
November 22, 1997
DRE-1 (9/97)
3
<PAGE> 6
<TABLE>
<S> <C>
TABLE OF CONTENTS
- ------------------------------------------------
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 6
- ------------------------------------------------
Investments Objectives, Policies and Risk
Factors 11
- ------------------------------------------------
Investment Manager and Underwriter 20
- ------------------------------------------------
Dividends and Taxes 24
- ------------------------------------------------
Net Asset Value 25
- ------------------------------------------------
Purchase of Shares 26
- ------------------------------------------------
Redemption or Repurchase of Shares 31
- ------------------------------------------------
Special Features 35
- ------------------------------------------------
Performance 39
- ------------------------------------------------
Capital Structure 40
- ------------------------------------------------
</TABLE>
This prospectus of the Kemper Value Fund, Inc. ("KVF") contains information
about KVF that you should know before investing and should be retained for
future reference. A Statement of Additional Information dated November 22, 1997,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available upon request without charge from KVF at the
address or telephone number on this cover or the firm from which this prospectus
was obtained.
KVF'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
KEMPER FUNDS LOGO
KEMPER VALUE
FUND, INC.
PROSPECTUS NOVEMBER 22, 1997
KEMPER VALUE FUND, INC. (FORMERLY NAMED KEMPER-DREMAN FUND, INC.)
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of four portfolios managed by Zurich Kemper
Value Advisors, Inc. (formerly named Dreman Value Advisors, Inc.)
KEMPER CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER SMALL CAP VALUE FUND
KEMPER MID CAP VALUE FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 7
KEMPER VALUE FUND, INC.
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The Kemper Value Fund, Inc. (formerly named Kemper-Dreman
Fund, Inc.) ("KVF") is an open-end, diversified management investment company.
KVF's four portfolios (each a "Fund" and collectively the "Funds") are covered
in this prospectus and are as follows:
KEMPER CONTRARIAN FUND (the "Contrarian Fund") seeks long-term capital
appreciation with current income as its secondary objective.
KEMPER-DREMAN HIGH RETURN EQUITY FUND (the "High Return Equity Fund") seeks to
achieve a high rate of total return.
KEMPER SMALL CAP VALUE FUND (the "Small Cap Value Fund") seeks long-term capital
appreciation.
KEMPER MID CAP VALUE FUND (the "Mid Cap Value Fund") seeks long-term capital
appreciation.
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate. The Funds will invest principally
in securities that, in the judgment of the investment manager, are undervalued.
Investment by the Small Cap Value Fund primarily in smaller companies involves
greater risk than investment in larger, more established companies. The High
Return Equity Fund may invest a significant percentage of its total assets in
one or more market sectors, in which case, financial, economic, business and
other developments affecting issuers in that sector may have a greater effect on
the Fund than if it had not concentrated its assets in that sector. Foreign
investments by the Mid Cap Value Fund involve risk and opportunity
considerations not typically associated with investing in U.S. companies. The
U.S. Dollar value of a foreign security tends to decrease when the value of the
U.S. Dollar rises against the foreign currency in which the security is
denominated and tends to increase when the value of the U.S. Dollar falls
against such currency. Thus, the U.S. Dollar value of foreign securities in the
Fund's portfolio, and the Fund's net asset value, may change in response to
changes in currency exchange rates even though the value of the foreign
securities in local currency terms may not have changed. While the Fund's
investments in foreign securities will principally be in developed countries,
the Fund may invest a portion of its assets in developing or "emerging" markets,
which involve exposure to economic structures that are generally less diverse
and mature than in the United States, and to political systems that may be less
stable. A portion of the assets of the Mid Cap Value Fund may be invested in
lower rated or unrated high yield bonds that entail greater risk of loss of
principal and interest than higher rated fixed income securities. The Funds are
authorized to invest in stock index futures and options to buy and sell such
futures. In these investments, the Funds assume the risk that, if the investment
manager's judgment regarding the direction of the securities markets is
incorrect, their investment performance might have been better if they had not
acquired futures contracts. The Funds are authorized to write covered call
options on securities. The High Return Equity, Small Cap Value and Mid Cap Value
Funds may write put options. If the market price of stock subject to a call
option rises above the exercise price of the option, the Funds will lose the
opportunity for further appreciation of that security. In selling a put option,
the High Return Equity, Small Cap Value and Mid Cap Value Funds assume the risk
that they might be obligated to acquire the optioned stock at a price above the
current market price. The Mid Cap Value Fund may also purchase options. See
"Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. KVF provides investors with the option of purchasing
shares in the following ways:
Class A Shares............ Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price. Reduced sales
charges apply to purchases of $50,000 or
1
<PAGE> 8
more. Class A shares purchased at net asset value
under the Large Order NAV Purchase Privilege may be
subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a .50%
contingent deferred sales change if redeemed during
the second year of purchase.
Class B Shares..............
Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase. Class
B shares automatically convert into Class A shares
(which have lower ongoing expenses) six years after
purchase.
Class C Shares..............
Offered at net asset value without an initial sales
charge, but subject to a Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and investments thereafter
must be at least $100. Shares are redeemable at net asset value, which may be
more or less than original cost, subject to any applicable contingent deferred
sales charge. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Zurich Kemper Value Advisors, Inc. (formerly
named Dreman Value Advisors, Inc.) ("ZKVA") serves as investment manager for
each Fund. ZKVA is paid an investment management fee by each Fund based upon
average daily net assets of that Fund at an annual rate ranging from .75% to
.62%. Zurich Investment Management Limited ("ZIML"), an affiliate of ZKVA, is a
sub-adviser for the Mid Cap Value Fund and is paid by ZKVA, a fee payable
monthly at the annual rate of .35% of the portion of the average daily net
assets of the Fund allocated by ZKVA to ZIML for management. Dreman Value
Management, L.L.C. ("DVM") is a sub-adviser for the High Return Equity Fund and
is paid by ZKVA a fee based upon average daily net assets of the Fund at an
annual rate ranging from .24% to .198%. Zurich Kemper Distributors, Inc.
("ZKDI"), an affiliate of ZKVA, is principal underwriter and administrator for
each Fund. For Class B shares and Class C shares, ZKDI receives a Rule 12b-1
distribution fee at an annual rate of .75% of average daily net assets. ZKDI
also receives the amount of any contingent deferred sales charges paid on the
redemption of shares. Administrative services are provided to shareholders under
an administrative services agreement with ZKDI. KVF pays an administrative
services fee at an annual rate of up to .25% of average daily net assets of
Class A, B and C shares of the Funds, which ZKDI pays to financial services
firms. See "Investment Manager and Underwriter."
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, and the Small Cap Value and Mid
Cap Value Funds normally distribute annual dividends of net investment income.
Each Fund distributes any net realized capital gains at least annually. Income
and capital gain dividends of a Fund are automatically reinvested in additional
shares of that Fund, without sales charge, unless the shareholder makes a
different election. See "Dividends and Taxes."
2
<PAGE> 9
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(APPLICABLE TO ALL FUNDS)(1) ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a
percentage of offering price).................. 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends..... None None None
Redemption Fees.................................. None None None
Exchange Fee..................................... None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)........................... None(3) 4% during the first 1% during the
year, 3% during the first year
second and third years,
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares--Initial Sales Charge Alternative--Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% the first year and .50% the second year. See "Purchase of
Shares--Initial Sales Charge Alternative--Class A Shares."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE MID CAP VALUE
FUND EQUITY FUND FUND FUND
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Management Fees (restated)....................... .75% .74% .75% .75%
12b-1 Fees....................................... None None None None
Other Expenses (restated)........................ .50% .47% .72% .80%
----- ----- ----- -----
Total Operating Expenses......................... 1.25% 1.21% 1.47% 1.55%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE MID CAP VALUE
FUND EQUITY FUND FUND FUND
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
CLASS B SHARES
Management Fees (restated)....................... .75% .74% .75% .75%
12b-1 Fees(4).................................... .75% .75% .75% .75%
Other Expenses (restated)........................ .84% .82% .99% .93%
----- ----- ----- -----
Total Operating Expenses......................... 2.34% 2.31% 2.49% 2.43%
===== ===== ===== =====
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE MID CAP VALUE
FUND EQUITY FUND FUND FUND
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
CLASS C SHARES
Management Fees (restated)....................... .75% .74% .75% .75%
12b-1 Fees(5).................................... .75% .75% .75% .75%
Other Expenses (restated)........................ 1.30% .84% .69% .90%
----- ----- ----- -----
Total Operating Expenses......................... 2.80% 2.33% 2.19% 2.40%
===== ===== ===== =====
</TABLE>
- ---------------
(4) As a result of 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum initial sales charges permitted by the
National Association of Securities Dealers, although ZKDI believes that it
is unlikely because of the automatic conversion feature described under
"Purchase of Shares--Deferred Sales Charge Alternative--Class B Shares."
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the Contrarian Fund $70 $ 95 $122 $200
following expenses on a High Return Equity Fund $69 $ 94 $120 $196
$1,000 investment, Small Cap Value Fund $72 $101 $133 $223
assuming (1) 5% annual Mid Cap Value Fund $72 $104 -- --
return and (2)
redemption at the end of
each time period:
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(6)
You would pay the Contrarian Fund $54 $93 $135 $215
following expenses on a High Return Equity Fund $53 $92 $134 $211
$1,000 investment, Small Cap Value Fund $55 $98 $143 $234
assuming (1) 5% annual Mid Cap Value Fund $55 $96 -- --
return and (2)
redemption at the end of
each time period:
You would pay the Contrarian Fund $24 $73 $125 $215
following expenses on High Return Equity Fund $23 $72 $124 $211
the same investment, Small Cap Value Fund $25 $78 $133 $234
assuming no redemption: Mid Cap Value Fund $25 $76 -- --
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES(7)
You would pay the Contrarian Fund $28 $87 $148 $313
following expenses on a High Return Equity Fund $24 $73 $125 $267
$1,000 investment, Small Cap Value Fund $22 $69 $117 $252
assuming (1) 5% annual Mid Cap Value Fund $24 $75 -- --
return and (2)
redemption at the end of
each time period:
</TABLE>
- ---------------
(6) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
(7) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was not applicable for any of
the periods shown. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. ZKVA
waived its management fee and absorbed operating expenses of the Contrarian,
High Return Equity, and Small Cap Value Funds to the extent necessary to limit
the Fund's operating expenses to the following percentage of such Fund's average
net assets through November 11, 1996: Class A shares - 1.25%; Class B shares -
2.00%; and Class C shares - 1.95%. "Management Fees" and "Other Expenses" for
the Contrarian, High Return Equity, and Small Cap Value Funds in the tables
above have been restated to reflect current fees. Since the Mid Cap Value Fund
will commence operations on or about September 9, 1997, the expenses shown for
the Fund are estimates for the current fiscal year, and the example is only
provided for the one and three year periods.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
5
<PAGE> 12
FINANCIAL HIGHLIGHTS
The tables below show financial information for the Contrarian, High Return
Equity and Small Cap Value Funds expressed in terms of one share outstanding
throughout the period. The information in the tables has been audited by Ernst &
Young LLP, independent auditors, except for the information for the periods
ended December 31, 1994 and prior which have been audited by other independent
auditors. The report of Ernst & Young LLP is contained in KVF's Registration
Statement and is available from KVF. The financial statements contained in the
Contrarian, High Return Equity and Small Cap Value Funds' 1996 Annual Report to
Shareholders are incorporated herein by reference and may be obtained by writing
or calling KVF.
CONTRARIAN FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .26 .28 .22 .25 .28 .25 .29 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.07 5.05 (.28) .96 1.13 2.38 (.94) 1.60 .54
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.30 5.31 -- 1.18 1.38 2.66 (.69) 1.89 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .22 .24 .28 .22 .26 .28 .26 .29 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain 1.35 1.05 1.16 .84 -- .11 .28 .81 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.57 1.29 1.44 1.06 .26 .39 .54 1.10 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.93 16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.42% 44.57 (.03) 9.10 11.32 26.53 (6.08) 18.29 6.96
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.23% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.34
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.56% 1.85 1.89 1.64 2.04 2.35 2.46 2.59 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.25% 1.66 1.42 1.54 1.53 1.76 1.52 1.67 2.37
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.54% 1.44 1.71 1.34 1.76 1.84 2.19 2.17 1.39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
6
<PAGE> 13
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------- --------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $16.20 15.26 16.20 15.26
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .07 .11 .08
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.07 1.85 2.05 1.85
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.18 1.92 2.16 1.93
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .11 .07 .11 .08
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain 1.35 .91 1.35 .91
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends 1.46 .98 1.46 .99
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.92 16.20 16.90 16.20
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.61% 12.83 13.51 12.85
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 2.11% 2.00 2.12 1.95
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .68% .88 .67 .93
- ----------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.34% 2.36 2.80 2.31
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .45% .52 (.01) .57
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------- MARCH 18 TO
1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $77,592 25,482 12,983 17,157 14,884 14,292 11,782 9,632 5,889
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 95% 30 16 16 28 36 37 45 39
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0490.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 14
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .39 .26 .25 .21 .24 .31 .34 .39 .25
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 5.75 6.76 (.39) 1.13 2.21 3.87 (1.21) 1.41 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.14 7.02 (.14) 1.34 2.45 4.18 (.87) 1.80 1.25
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .38 .24 .25 .21 .24 .30 .35 .43 .22
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .73 .40 -- .25 .12 .20 .07 2.26 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends 1.11 .64 .25 .46 .36 .50 .42 2.69 .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.52 21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.79% 46.86 (.99) 9.22 19.80 47.57 (8.63) 18.45 13.04
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.21% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 .57
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.55 1.58 1.47 1.88 2.52 3.61 3.83 3.75
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 1.21% 1.57 1.39 1.56 1.70 2.31 2.38 2.74 3.36
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.23 1.44 1.16 1.43 1.46 2.48 2.34 .96
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.47 19.45 21.48 19.45
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .07 .20 .09
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 5.72 2.41 5.72 2.41
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.91 2.48 5.92 2.50
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .21 .06 .22 .07
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .73 .40 .73 .40
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends .94 .46 .95 .47
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.44 21.47 26.45 21.48
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.63% 12.88 27.66 12.94
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.20% 2.00 2.22 1.95
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.13% .61 1.11 .66
- ---------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.31% 2.35 2.33 2.30
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.02% .26 1.00 .31
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------- MARCH 18 TO
1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $737,834 98,196 35,005 28,413 14,425 7,238 3,868 3,992 2,413
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 10% 18 12 14 13 37 204 156 107
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0513.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 15
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996(b) 1995 1994 1993 1992(a)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.50 10.85 11.23 11.52 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14 (.02) -- .06 .03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.14 4.64 .02 .23 1.95
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.28 4.62 .02 .29 1.98
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .07 -- -- .06 .03
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .43 .97 .40 .52 .43
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .50 .97 .40 .58 .46
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.28 14.50 10.85 11.23 11.52
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 29.60% 43.29 .15 2.54 32.51*
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.31% 1.25 1.25 1.25 1.25
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .87% (.16) (.03) .53 .81
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.47% 1.83 1.82 2.09 4.29
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .71% (.74) (.61) (.32) (2.24)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------- ------------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996(b) DECEMBER 31, 1995 DECEMBER 31, 1996(b) DECEMBER 31, 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $14.48 15.75 14.48 15.75
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .01 (.02) .01 (.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 4.11 (.41) 4.14 (.41)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.12 (.43) 4.15 (.43)
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .03 -- .03 --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain .43 .84 .43 .84
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends .46 .84 .46 .84
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.14 14.48 18.17 14.48
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.54% (2.52) 28.77 (2.51)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.12% 2.00 2.06 1.95
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .06% (.99) .12 (.94)
- -----------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.49% 2.39 2.19 2.35
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (.31)% (1.38) (.01) (1.34)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Per share data for 1996 were determined based on average shares outstanding.
9
<PAGE> 16
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------- MAY 22 TO
1996 1995 1994 1993 DECEMBER 31, 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $273,222 31,606 6,931 4,875 2,385
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 23% 86 140 79 37
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
December 31, 1996 was $.0426.
- --------------------------------------------------------------------------------
NOTES:Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating
expenses of the Funds through November 11, 1996. The "Other Ratios to
Average Net Assets" are computed without this expense waiver or
absorption.
The Mid Cap Value Fund (not shown above) will commence operations on or about
November 22, 1997.
10
<PAGE> 17
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. The investment objective of each Fund may be changed without the
affirmative vote of a majority of the outstanding securities of that Fund. Each
Fund's returns and net asset value will fluctuate and there is no assurance that
any Fund will meet its objective. For a description of how the investment
manager selects specific securities for inclusion in a Fund's portfolio, see
"Additional Investment Information."
Each Fund will invest principally in a diversified portfolio of equity
securities of companies that the investment manager believes to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the company.
CONTRARIAN FUND. The Contrarian Fund's primary investment objective is to seek
long-term capital appreciation and its secondary objective is to seek current
income. The Fund will invest primarily in common stocks of larger, listed
companies with a record of earnings and dividends, low price-earnings ratios,
reasonable returns on equity, and sound finances which, in the opinion of ZKVA,
have intrinsic value. The Fund may, however, from time to time, invest in stocks
that pay no dividends. It is anticipated that most stocks purchased will be
listed on the New York Stock Exchange, but the Fund may also purchase securities
listed on other securities exchanges and in the over-the-counter market. The
Fund may also invest in preferred stocks, convertible securities and warrants.
The Fund may sell call options on securities it holds ("covered call options").
HIGH RETURN EQUITY FUND. The High Return Equity Fund's investment objective is
to achieve a high rate of total return. The common stocks held by the Fund will
have the same investment characteristics as those held by the Contrarian Fund.
The Fund generally will invest in common stocks that pay relatively high
dividends, i.e. comparable to the dividend yield of Standard & Poor's 500
Composite Stock Index. In order to enhance its investment return, the Fund may
sell covered call options, and sell put options on securities it may acquire.
The Fund will earn premium income on the sale of these options.
Under normal market conditions, the Fund will invest at least 65% 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 and equity equivalents.
While most investments will be in dividend paying stocks, the Fund may also
acquire stocks that do not pay dividends in anticipation of market appreciation,
future dividends, and when the investment manager believes that it would be
advantageous to write options on such stocks. The Fund will be managed with a
view to achieving a high rate of total return on investors' capital primarily
through appreciation of its common stock holdings, options transactions and by
acquiring and selling stock index futures and options thereon and, to a lesser
extent, through dividend and interest income, all of which, in the investment
manager's judgment, are elements of "total return."
Although the Fund will not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors, such as the financial services
sector. If the Fund concentrates its investments in a market sector, financial,
economic, business and other developments affecting issuers in that sector may
have a greater effect on the Fund than if it had not concentrated its assets in
that sector.
SMALL CAP VALUE FUND. The Small Cap Value Fund's investment objective is to seek
long-term capital appreciation. It will invest principally in a diversified
portfolio of equity securities of small companies with market capitalizations
ranging from $100 million to $1 billion that the investment manager believes to
be undervalued.
11
<PAGE> 18
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in securities of companies whose market capitalizations are
less than $1 billion.
The Fund will invest primarily in common stocks of companies with a record of
earnings, low price-earnings ratios, reasonable returns on equity and sound
finances which, in the opinion of the investment manager, have intrinsic value.
Such securities are generally traded on the New York Stock Exchange, the
American Stock Exchange and in the over-the-counter market. The Fund may also
invest in preferred stocks, convertible securities and warrants. The Fund may
also sell covered call options and put options on securities it may acquire.
MID CAP VALUE FUND. The Mid Cap Value Fund's investment objective is to seek
long-term capital appreciation. It will invest principally in a diversified
portfolio of equity securities of companies with market capitalizations ranging
from $1 billion to $5 billion that the investment manager believes to be
undervalued. Under normal market conditions, at least 65% of the total assets of
the Fund will be invested in equity securities of companies whose market
capitalizations range from $1 billion to $5 billion. 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.
Up to 35% of the total assets of the Fund may be invested in fixed income
securities, including high yield fixed income securities that are in the lower
rating categories and those that are unrated. Thus, the Fund could invest in
some instruments considered by the rating services to have predominantly
speculative characteristics. Investments in lower rated or non-rated securities,
while generally providing greater income and opportunity for gain than
investments in higher rated securities, entail greater risk of loss of income
and principal. Currently, it is anticipated that the Fund would invest no more
than 15% of its total assets in high yield bonds. For a discussion of lower
rated and non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below.
The Fund may also purchase and write options, engage in financial futures
transactions, purchase foreign securities and engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below.
SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Mid Cap Value Fund invests
primarily in securities that are publicly traded in the United States; but, it
has discretion to invest a portion of its assets in foreign securities that are
traded principally in securities markets outside the United States. The Mid Cap
Value Fund currently limits investment in foreign securities not publicly traded
in the United States to 25% of its total assets. The Mid Cap Value Fund may also
invest without limit in U.S. Dollar denominated American Depository Receipts
("ADRs"), which are bought and sold in the United States and are not subject to
the preceding limitation. The Contrarian, High Return Equity and Small Cap Value
Funds may invest up to 20% of their assets in ADRs. In connection with its
foreign securities investments, the Mid Cap Value Fund may, to a limited extent,
engage in foreign currency exchange, options and futures transactions as a hedge
and not for speculation. Additional information concerning foreign securities
and related techniques is contained under "Additional Investment Information"
below and "Investment Policies and Techniques" in the Statement of Additional
Information.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
12
<PAGE> 19
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
EMERGING MARKETS. While the Mid Cap Value Fund's investments in foreign
securities will be principally in developed countries, the Fund may make
investments in developing or "emerging" countries, which involve exposure to
economic structures that are generally less diverse and mature than in the
United States, and to political systems that may be less stable. A developing or
emerging market country can be considered to be a country that is in the initial
stages of its industrialization cycle. Currently, emerging markets generally
include every country in the world other than the United States, Canada, Japan,
Australia, New Zealand and most Western European countries. Currently, investing
in many emerging markets may not be desirable or feasible because of the lack of
adequate custody arrangements for the Fund's assets, overly burdensome
repatriation and similar restrictions, the lack of organized and liquid
securities markets, unacceptable political risks or other reasons. As
opportunities to invest in securities in emerging markets develop, the Fund may
expand and further broaden the group of emerging markets in which it invests. In
the past, markets of developing or emerging market countries have been more
volatile than the markets of developed countries; however, such markets often
have provided higher rates of return to investors. The investment manager
believes that these characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio
13
<PAGE> 20
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser. Certain emerging markets may lack
clearing facilities equivalent to those in developed countries. Accordingly,
settlements can pose additional risks in such markets and ultimately can expose
the Fund to the risk of losses resulting from the Fund's inability to recover
from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Directors.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
FIXED INCOME. Since most foreign fixed income securities are not rated, the Mid
Cap Value Fund will invest in foreign fixed income securities based on the
investment manager's analysis without relying on published ratings. Since such
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of the Fund's goals may depend more upon the
abilities of the investment manager than would otherwise be the case.
The value of the foreign fixed income securities held by the Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which the Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of the Fund's
investments in foreign fixed income securities, and the extent to which the Fund
hedges its interest rate, credit and currency exchange rate risks. Many of the
foreign fixed income obligations in which the Fund will invest will have long
maturities. A longer average maturity generally is associated with a higher
level of volatility in the market value of such securities in response to
changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to other debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and the Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of the Fund. A significant
portion of the sovereign debt in which the Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayments with respect to Brady Bonds may be uncollateralized.
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PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatization will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Mid Cap Value Fund
may also invest in European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"), which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are designed for use in the European
securities markets. EDRs and GDRs are not necessarily denominated in the
currency of the underlying security.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the Mid Cap
Value Fund may invest a portion of its assets in fixed income securities that
are in the lower rating categories (below the fourth category) of recognized
rating agencies or are non-rated. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories. Lower rated and non-rated securities, which are
commonly referred to as "junk bonds," have widely varying characteristics and
quality. The market values of such securities tend to reflect individual
corporate developments to a greater extent than do those of higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also are more
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sensitive to economic conditions than are higher rated securities. Adverse
publicity and investor perceptions regarding lower rated bonds, whether or not
based upon fundamental analysis, may depress the prices for such securities.
These and other factors adversely affecting the market value of high yield
securities will adversely affect the Fund's net asset value. Although some risk
is inherent in all securities ownership, holders of fixed income securities have
a claim on the assets of the issuer prior to the holders of common stock.
Therefore, an investment in fixed income securities generally entails less risk
than an investment in common stock of the same issuer. The Fund may have
difficulty disposing of certain high yield securities because they may have a
thin trading market. The lack of a liquid secondary market may have an adverse
effect on market price and the Fund's ability to dispose of particular issues
and may also make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing these assets. Additional information
concerning high yield securities appears under "Investment Policies and
Techniques--Other Considerations--High Yield (High Risk) Bonds" and
"Appendix--Ratings of Fixed Income Investments" in the Statement of Additional
Information.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates of each Fund
other than the Mid Cap Value Fund are listed under "Financial Highlights." It is
anticipated that, under normal circumstances, the portfolio turnover rate for
the Mid Cap Value Fund will not exceed 100%. A Fund may periodically experience
a high turnover rate (over 100%). The Funds will usually hold stocks acquired
for the long-term and will sell stocks when the investment manager believes that
anticipated price appreciation is no longer probable, alternative investments
offer superior appreciation prospects, or the risk of decline in market prices
is greater than the potential for gain. Portfolio turnover will tend to rise
during periods of economic turbulence and decline during periods of stable
growth. The use of options and futures contracts will tend to increase the
portfolio turnover rate of a Fund. To the extent the investment policies of that
Fund result in a relatively high turnover rate, it will incur greater expenses
and brokerage fees.
SELECTION OF INVESTMENTS. In order to determine whether a security is
"undervalued," the principal factor considered by the investment manager is the
P/E ratio of the security. The investment manager believes that the risk in
owning stocks can be reduced by investing in companies with sound finances whose
current market prices are low in relation to earnings. In determining whether a
company's finances are sound, the investment manager considers among other
things, its cash position and current ratio (current assets compared to current
liabilities).
The investment manager applies quantitative analysis to its research process,
and begins by screening a large number of stocks. Typically, most companies
selected for inclusion in the Contrarian and High Return Equity Funds will have
market capitalizations well in excess of $1 billion, those selected for
inclusion in the Mid Cap Value Fund will have market capitalizations ranging
from $1 billion to $5 billion and those selected for inclusion in the Small Cap
Value Fund will have market capitalizations ranging from approximately $100
million to $1 billion. In selecting among stocks with low P/E ratios, the
investment manager also considers factors such as the following about the
issuer:
- Financial strength,
- Book-to-market value,
- Five and ten-year earnings growth rates,
- Five and ten-year dividend growth rates,
- Five and ten-year return on equity,
- Size of institutional ownership, and
- Earnings estimates for the next 12 months.
Fundamental analysis is used on companies that initially look promising.
Earnings and cash flow analysis as well as a company's conventional dividend
payout ratio are important to this process. Typically, the Funds will consist of
approximately 25 to 50 stocks, diversified by both sector and industry,
although, as noted above, the High Return Equity Fund may, from time to time,
concentrate its assets in one or more market sectors. While it is anticipated
that under normal circumstances all Funds will be fully invested, in order to
conserve assets
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during temporary defensive periods when the investment manager deems it
appropriate, each Fund may invest up to 50% of its assets in cash or
defensive-type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements. Investments in such interest bearing securities
will be for temporary defensive purposes only.
The Funds' policies of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment manager to present minimal credit risk. The investment manager will
monitor on an on-going basis the creditworthiness of the broker-dealers and
banks with which the Funds may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Funds' limitations on illiquid securities. The Contrarian, High
Return Equity and Small Cap Value Funds will not invest more than 10%, and the
Mid Cap Value Fund will not invest more than 15%, of the value of their net
assets in illiquid securities.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. A Fund may deal in options on
securities and securities indexes that are listed for trading on a national
securities exchange. The Mid Cap Value Fund may also deal in options on
securities and securities indexes that are traded over-the-counter. In
connection with its foreign securities investments, the Mid Cap Value Fund may
also purchase and sell foreign currency options.
Each Fund may write (sell) covered call options on up to 100% of net assets and
each Fund other than the Contrarian Fund may write (sell) secured put options on
up to 50% of net assets. The Mid Cap Value Fund may purchase put and call
options provided that no more than 5% of its net assets may be invested in
premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price during or at the end of the option period. The
writer of a covered call owns securities or other assets that are acceptable for
escrow and the writer of a secured put invests an amount not less than the
exercise price in eligible securities or other assets to the extent that it is
obligated as a writer. If a call written by a Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying security or other asset over the exercise price plus the premium
received. In writing puts, there is a risk that a Fund may be required to take
delivery of the underlying security or other asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
the Mid Cap Value Fund
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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 other assets, and a wider range of expiration dates and exercise
prices, than for exchange traded options.
A Fund may engage in financial futures transactions. Financial futures contracts
are commodity contracts that obligate the long or short holder to take or make
delivery of a specified quantity of a financial instrument, such as a security,
or the cash value of a securities index during a specified future period at a
specified price. A Fund will "cover" futures contracts sold by the Fund and
maintain in a segregated account certain liquid assets in connection with
futures contracts purchased by the Fund as described under "Investment Policies
and Techniques" in the Statement of Additional Information. In connection with
its foreign securities investments, the Mid Cap Value Fund may also engage in
foreign currency financial futures transactions. A Fund will not enter into any
futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.
The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, when the near-term
market view is bearish but the portfolio composition is judged satisfactory for
the longer term, exposure to temporary declines in the market may be reduced by
entering into futures contracts to sell securities or the cash value of a
securities index. Conversely, where the near-term view is bullish, but the Fund
is believed to be well positioned for the longer term with a high cash position,
the Fund can hedge against market increases by entering into futures contracts
to buy securities or the cash value of a securities index. In either case, the
use of futures contracts would tend to reduce portfolio turnover and facilitate
the Fund's pursuit of its investment objective.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and futures market could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, a Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce a Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
SPECIAL RISK FACTORS--OPTIONS, FUTURES, FOREIGN CURRENCIES AND OTHER
DERIVATIVES. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
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futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures and other derivatives contracts and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivatives intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivatives contracts in order to continue
to qualify for beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code; and (f) the possible non-performance
of the counter-party to the derivative contract.
SECURITIES LOANS. The Funds are authorized to lend their portfolio securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional investment income. The Funds do not intend to
loan securities if as a result more than 5% of their respective net assets would
be on loan.
BORROWING. While each Fund other than the Mid Cap Value Fund is authorized to
borrow from banks in amounts not in excess of 10% of their respective total
assets and the Mid Cap Value Fund is authorized to borrow from banks in amounts
not in excess of one-third ( 1/3) of its total assets, they do not intend to do
so. If, in the future, they do borrow from banks, they would not purchase
additional securities at any time when such borrowings exceed 5% of their
respective net assets.
SMALL CAP SECURITIES. Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
value of the Small Cap Value Fund's shares may be more volatile than the shares
of a fund that invests in larger capitalization stocks.
FOREIGN CURRENCY TRANSACTIONS. The Mid Cap Value Fund may invest a portion of
its assets in securities denominated in foreign currencies. The Fund may engage
in foreign currency transactions in connection with its investments in foreign
securities but will not speculate in foreign currency exchange.
The value of the foreign securities investments of the Fund measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. The
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security
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transaction, the Fund is able to protect itself against a possible loss between
trade and settlement dates resulting from an adverse change in the relationship
between the U.S. Dollar and such foreign currency. However, this tends to limit
potential gains that might result from a positive change in such currency
relationships. The Fund may also hedge its foreign currency exchange rate risk
by engaging in currency financial futures and options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
The Fund will not speculate in foreign currency exchange. The Fund will not
enter into such forward contracts or maintain a net exposure in such contracts
where the Fund would be obligated to deliver an amount of foreign currency in
excess of the value of the Fund's securities or other assets denominated in that
currency. There is no limitation as to the percentage of the Fund's assets that
may be committed to forward contracts for the purchase of a foreign currency.
The Fund segregates cash or liquid securities to the extent required by
applicable regulation in connection with forward foreign currency exchange
contracts entered into for the purchase of a foreign currency. The Fund
generally does not enter into a forward contract with a term longer than one
year.
DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, each Fund may invest in a broad
array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position
indirectly (often because it is more efficient or less costly than direct
investment). There is no guarantee that these results can be achieved through
the use of derivatives. The types of derivatives used by each Fund and the
techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Value Advisors, Inc. (formerly named Dreman
Value Advisors, Inc.) ("ZKVA"), 280 Park Avenue, 40th Floor, New York, New York
10017, is the investment manager of each Fund and provides each Fund with
continuous professional investment supervision. Dreman Value Management, L.L.C.
("DVM"), Three Harding Road, Red Bank, New Jersey 07701, is the sub-adviser for
the High Return Equity Fund. See "High Return Equity Fund" below for information
about DVM. ZKVA, which was formed in October 1994, began serving as investment
manager to the Contrarian, High Return Equity and Small Cap Value Funds in
August, 1995 when it acquired substantially all the assets of Dreman Value
Management, L.P., KVF's former investment manager. ZKVA has approximately $2
billion under management. It is a wholly owned subsidiary of Zurich Kemper
Investments, Inc. ("ZKI"), which is one of the largest investment managers in
the country and has been engaged in the management of investment funds for more
than forty-eight years. ZKI and its affiliates, including ZKVA, provide
investment advice and manage investment portfolios for the
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Kemper Funds, Zurich Money Funds, affiliated insurance companies and other
corporate, pension, profit-sharing and individual accounts representing
approximately $80 billion under management. ZKI and its affiliates (including
ZKVA) act as investment manager for 32 open-end and seven closed-end investment
companies, with 85 separate investment portfolios, representing more than 2.5
million shareholder accounts. ZKI is an indirect subsidiary of Zurich Insurance
Company, a leading internationally recognized provider of insurance and
financial services in property/casualty and life insurance, reinsurance and
structured financial solutions as well as asset management.
Responsibility for overall management of KVF rests with its Board of Directors
and officers. Professional investment supervision is provided by ZKVA. The
investment management agreement provides that ZKVA shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities. Zurich Investment Management Limited ("ZIML"), 1 Fleet Place,
London, U.K. EC4M 7RQ, an affiliate of ZKVA, is the sub-adviser for the Mid Cap
Value Fund. ZIML is an indirect subsidiary of Zurich Insurance Company and has
served as sub-adviser for mutual funds since December, 1996 and investment
adviser for certain institutional accounts since August, 1988. Under the terms
of the Sub-Advisory Agreement between ZIML and ZKVA, ZIML renders investment
advisory and management services with regard to such portion of the Mid Cap
Value Fund's portfolio as may be allocated to ZIML by ZKVA from time to time for
management of foreign securities, including foreign currency transactions and
related investments.
Christian C. Bertelsen has been the manager of the Contrarian Fund since March,
1996. Mr. Bertelsen joined ZKVA in March, 1996 as Chief Investment Officer.
Prior to joining ZKVA, he served from April, 1993 as a senior vice president and
a portfolio manager of an unaffiliated investment management firm where he
continues to serve on a temporary part-time basis. Prior thereto, he was a
senior vice president of another unaffiliated investment management firm. Mr.
Bertelsen received a B.A. degree from Boston University, Boston, Massachusetts.
David N. Dreman has been the portfolio manager of the High Return Equity Fund
since its inception. He is the Chairman of DVM, and was associated with KVF's
former investment adviser. Mr. Dreman is a pioneer of the philosophy of
contrarian investing (buying what is out of favor) and a leading proponent of
the low P/E investment style. He is a columnist for FORBES and the author of
several books on the value style of investing. He received a Bachelor of
Commerce from the University of Manitoba, Winnipeg, Manitoba, Canada.
Thomas H. Forester has been the lead portfolio co-manager of the Small Cap Value
Fund since May, 1997, and Christian C. Bertelsen and Steven T. Stokes have been
portfolio co-managers of the Small Cap Value Fund since July, 1996. Mr. Forester
joined ZKVA in May, 1997. Prior thereto, he served as a senior portfolio manager
with an unaffiliated investment management company. He received his
undergraduate degree at the University of Colorado and holds an M.B.A. in
finance from the Kellog Graduate School of Management at Northwestern
University. He is a Chartered Financial Analyst. Mr. Stokes joined ZKVA in
April, 1996 and is currently a Managing Director of ZKVA. Prior thereto, he
served as a portfolio manager of an unaffiliated investment management firm. Mr.
Stokes received a B.S. degree in Finance from State University of New York at
New Paltz. Mr. Stokes is a Chartered Financial Analyst. Information regarding
Mr. Bertelsen appears above.
Christian C. Bertelson, Thomas H. Forester and Steven T. Stokes have been the
portfolio co-managers of the Mid Cap Value Fund since its inception. Information
regarding Messrs. Bertelson, Forester and Stokes appears above.
Each Fund pays ZKVA an investment management fee, payable monthly, at the annual
rate of .75% of the first $250 million of its average daily net assets, .72% of
average daily net assets between $250 million and $1 billion, .70% of average
daily net assets between $1 billion and $2.5 billion, .68% of average daily net
assets between $2.5 billion and $5 billion, .65% of average daily net assets
between $5 billion and $7.5 billion, .64% of average daily net assets between
$7.5 billion and $10 billion, .63% of average daily net assets between $10
billion and $12.5 billion and .62% of its average daily net assets over $12.5
billion. To the extent that the management fee paid to ZKVA is .75%, it is
higher than that paid by most other mutual funds.
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As mentioned above, ZIML is a sub-adviser for the Mid Cap Value Fund. ZKVA pays
ZIML for its services a sub-advisory fee, payable monthly at the annual rate of
.35% of the portion of the average daily net assets of the Fund allocated by
ZKVA to ZIML for management.
HIGH RETURN EQUITY FUND. As mentioned above, DVM is a sub-adviser for the High
Return Equity Fund. Under the terms of the sub-advisory agreement between ZKVA
and DVM, DVM manages the investment and reinvestment of the Fund's assets in
accordance with the investment objectives, policies and limitations and subject
to the supervision of ZKVA and the Board of Directors. DVM was formed in April
1997 and has served as sub-adviser for the Fund since August 1997. DVM is
controlled by David N. Dreman. ZKVA pays DVM for its services a sub-advisory
fee, payable monthly, at the annual rate of .24% of the first $250 million of
the Fund's average daily net assets, .23% of the average daily net assets
between $250 million and $1 billion, .224% of average daily net assets between
$1 billion and $2.5 billion, .218% of average daily net assets between $2.5
billion and $5 billion, .208% of average daily net assets between $5 billion and
$7.5 billion, .205% of average daily net assets between $7.5 billion and $10
billion, .202% of average daily net assets between $10 billion and $12.5 billion
and .198% of the Fund's average daily net assets over $12 billion. In addition,
ZKVA has guaranteed the following minimum payments to DVM during the calendar
years that DVM serves as sub-adviser: $1 million for 1997, and $8 million in
each of 2000, 2001 and 2002.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with KVF, Zurich Kemper Distributors, Inc.
("ZKDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of
ZKVA and a wholly owned subsidiary of ZKI, is the principal underwriter and
distributor of each Fund's shares and acts as agent of each Fund in the sale of
its shares. ZKDI bears all its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. ZKDI provides
for the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than shareholders. ZKDI bears
the cost of qualifying and maintaining the qualification of the Funds' shares
for sale under the securities laws of the various states and KVF bears the
expense of registering its shares with the Securities and Exchange Commission.
ZKDI may enter into related selling group agreements with various
broker-dealers, including affiliates of ZKDI, that provide distribution services
to investors. ZKDI also may provide some of the distribution services.
CLASS A SHARES. ZKDI receives no compensation from KVF as principal underwriter
for Class A shares and pays all expenses of distribution of KVF's Class A shares
under the distribution agreement not otherwise paid by dealers or other
financial services firms. As indicated under "Purchase of Shares," ZKDI retains
the sales charge upon the purchase of shares and pays or allows concessions or
discounts to firms for the sale of KVF shares.
CLASS B SHARES. For its services under the distribution agreement, ZKDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. ZKDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares-Contingent
Deferred Sales Charge-Class B Shares." ZKDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, ZKDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. ZKDI currently advances to firms
the first year distribution fee at a rate of .75% of the purchase price of such
shares. For periods after the first year, ZKDI currently intends to pay firms
for sales of Class C shares a distribution fee, payable quarterly, at an annual
rate of .75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by ZKDI or KVF. ZKDI
also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares--Contingent Deferred Charge--Class C Shares."
22
<PAGE> 29
RULE 12B-1 PLAN. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by ZKDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. The table below shows amounts paid in
connection with the Contrarian, High Return Equity and Small Cap Value Fund's
Rule 12b-1 Plan during their 1996 fiscal year.
<TABLE>
<CAPTION>
DISTRIBUTION FEES CONTINGENT DEFERRED
DISTRIBUTION EXPENSES PAID BY FUND SALES CHARGE PAID
INCURRED BY UNDERWRITER TO UNDERWRITER(A) TO UNDERWRITER
------------------------ -------------------- --------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian...................... $ 1,165,000 86,000 95,000 2,000 15,000 2,000
High Return Equity.............. $11,821,000 810,000 750,000 96,000 127,000 3,000
Small Cap Value................. $ 3,818,000 423,000 191,000 48,000 52,000 1,000
</TABLE>
- ---------------
(a) Amounts shown are after expense waiver.
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of KVF to make payments to ZKDI pursuant to the Plan will cease
and KVF will not be required to make any payments past the termination date.
Thus, there is no legal obligation for KVF to pay any expenses incurred by ZKDI
in excess of its fees under the Plan, if for any reason the Plan is terminated
in accordance with its terms. Future fees under the Plan may or may not be
sufficient to reimburse ZKDI for its expenses incurred.
ADMINISTRATIVE SERVICES. ZKDI also provides information and administrative
services for shareholders of KVF pursuant to an administrative services
agreement ("administrative agreement"). ZKDI 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 in KVF. 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. ZKDI bears all its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreement, KVF pays ZKDI 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 each Fund. ZKDI then pays each firm a
service fee at an annual rate of up to .25% of net assets of each class of those
accounts that it maintains and services for KVF. Firms to which service fees may
be paid include affiliates of ZKDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the accounts in the month following the month of purchase
and the fee continues until terminated by ZKDI or KVF. The fees are calculated
monthly and paid quarterly.
CLASS B AND CLASS C SHARES. ZKDI 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, ZKDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm and the fee continues until terminated by ZKDI or KVF.
ZKDI 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 KVF. Currently, the
administrative services fee payable to ZKDI is based only upon KVF assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI will pay all the administrative services fee
23
<PAGE> 30
that it receives from KVF to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of KVF while
this procedure is in effect will depend upon the proportion of Fund assets that
is in accounts for which a firm provides administrative services. In addition,
ZKDI 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 each Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of KVF 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 the Mid Cap Value Fund held outside the United States.
IFTC also is KVF's transfer agent and dividend-paying agent. Pursuant to a
services agreement with IFTC, Zurich Kemper Service Company ("ZKSVC"), an
affiliate of ZKVA, serves as "Shareholder Service Agent" of KVF and, as such,
performs all of IFTC's duties as transfer agent and dividend-paying agent. For a
description of transfer agent and shareholder service agent fees, see
"Investment Manager and Underwriter" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS. ZKVA places all orders for purchases and sales of a
Fund's securities (except that DVM places all orders for the High Return Equity
Fund and ZIML places certain orders for purchases and sales of the Mid Cap Value
Fund's foreign securities and related transactions). Subject to seeking best
execution of orders, they may consider sales of shares of a Fund and of funds
managed by ZKI or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, the Small Cap Value and Mid Cap
Value Funds normally distribute annual dividends of net investment income and
each Fund distributes any net realized short-term and long-term capital gains at
least annually.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested will normally be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Funds will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the same Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
24
<PAGE> 31
TAXES. The Mid Cap Value Fund intends to qualify and the Contrarian, High Return
Equity and Small Cap Value Funds intend to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
and, if so qualified, will not be liable for federal income taxes to the extent
its earnings are distributed. Dividends derived from net investment income and
net short-term capital gains are taxable to shareholders as ordinary income and
long-term capital gain dividends are taxable to shareholders as long-term
capital gain regardless of how long the shares have been held and whether
received in cash or shares. Long-term capital gain dividends received by
individual shareholders are currently taxed at a maximum rate of 28%. Dividends
declared in October, November or December to shareholders of record as of a date
in one of those months and paid during the following January are treated as paid
on December 31 of the calendar year declared. A portion of the dividends paid by
a Fund may qualify for the dividends received deduction available to corporate
shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of a Fund is determined separately for each class
by dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a Fund will generally be lower than that of the
Class A shares of the Fund because of the higher expenses borne by Class B and
Class C shares. Fund securities that are primarily traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
of Directors or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are
25
<PAGE> 32
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. Exchange traded fixed income options,
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.
Over-the-counter traded options are valued based upon current prices provided by
market makers. Other securities and assets are valued at fair value as
determined in good faith by the Board of Directors. Because of the need to
obtain prices as of the close of trading on various exchanges throughout the
world, the calculation of net asset value of the Mid Cap Value Fund does not
necessarily take place contemporaneously with the determination of the prices of
the Fund's foreign securities, which may be made prior to the determination of
net asset value. For purposes of determining the net asset value of the Mid Cap
Value Fund, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. Dollar values at the mean between the bid and
offered quotations of such currencies against U.S. Dollars as last quoted by a
recognized dealer. If an event were to occur, after the value of a security was
so established but before the net asset value per share was determined, which
was likely to materially change the net asset value, then that security would be
valued using fair value determinations by the Board of Directors or its
delegates. On each day the New York Stock Exchange (the "Exchange") is open for
trading, the net asset value is determined as of the earlier of 3:00 pm. Chicago
time or the close of the Exchange.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
Class Maximum initial sales charge of None Initial sales charge waived or
A.... 5.75% of the public offering reduced for certain purchases
price
Class Maximum contingent deferred sales 0.75% Shares convert to Class A shares
B.... charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class Contingent deferred sales charge 0.75% No conversion feature
C.... of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
26
<PAGE> 33
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------------------------------
ALLOWED TO
AS A PERCENTAGE DEALERS AS A
AS A PERCENTAGE OF NET ASSET PERCENTAGE OF
OF OFFERING PRICE VALUE* OFFERING PRICE
AMOUNT OF PURCHASE ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000........................ 4.50 4.71 4.00
$100,000 but less than $250,000....................... 3.50 3.63 3.00
$250,000 but less than $500,000....................... 2.60 2.67 2.25
$500,000 but less than $1 million..................... 2.00 2.04 1.75
$1 million and over................................... .00** .00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by ZKDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
ZKDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, ZKDI may reallow up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which neither ZKVA nor ZKI serve as investment manager
("non-Kemper fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. The redemption of the shares of the non-Kemper fund
is, for federal income tax purposes, a sale upon which a gain or loss may be
realized. ZKDI may in its discretion compensate firms for sales of Class A
shares under this privilege at a commission rate of .50% of the amount of Class
A shares purchased.
27
<PAGE> 34
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
ZKDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege. For purposes of
determining the appropriate commission percentage to be applied to a particular
sale under the foregoing schedules, ZKDI will consider the cumulative amount
invested by the purchaser in a Fund and other Kemper Mutual Funds listed under
"Special Features--Class A Shares--Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of a Fund at net asset value under the Large Order NAV Purchase Privilege is not
available if another net asset value purchase privilege is also applicable.
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER
SHORT-TERM GLOBAL INCOME FUND, ET. AL., Case No. 93 C 5231 (N.D.IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, ZKDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to .25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by ZKDI. The
privilege of purchasing Class A shares of the Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
directors, employees (including retirees) and sales representatives of KVF, its
investment manager, its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with ZKDI; (c)
officers, directors, and employees of service agents of KVF; (d) shareholders
who owned shares of KVF on September 8, 1995, and have continuously owned shares
of KVF (or a Kemper Fund acquired by exchange of KVF shares) since that date,
for themselves or members of their families; and (e) any trust, pension,
profit-sharing or other benefit plan for only such persons. Class A shares may
be sold at net asset value in any amount to selected employees (including their
spouses and
28
<PAGE> 35
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of KVF for their clients pursuant to an agreement with
ZKDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase a Fund's Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the Investment Advisers Act of 1940
and other financial services firms that adhere to certain standards established
by ZKDI, including a requirement that such shares be sold for the benefit of
their clients participating in an investment advisory program under which such
clients pay a fee to the investment advisor or other firm for portfolio
management and other services. Such shares are sold for investment purposes and
on the condition that they will not be resold except through redemption or
repurchase by KVF. KVF may also issue Class A shares at net asset value in
connection with the acquisition of the assets of or merger or consolidation with
another investment company, or to shareholders in connection with the investment
or reinvestment of income and capital gain dividends.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with ZKDI, for themselves or members of their
families. ZKDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
ZKDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. ZKDI
is compensated by KVF for services as distributor and principal underwriter for
Class B shares. See "Investment Manager and Underwriter." Class B shares of a
Fund will automatically convert to Class A shares of the same Fund six years
after issuance on the basis of the relative net asset value per share. The
purpose of the conversion feature is to relieve holders of Class B shares from
the distribution services fee when they have been outstanding long enough for
ZKDI to have been compensated for distribution related expenses. For purposes of
conversion to Class A shares, shares purchased through the
29
<PAGE> 36
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's KVF account will be converted to Class A shares on a
pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon redemption
of Class C shares within one year of purchase. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares." ZKDI currently
advances to firms the first year distribution fee at a rate of .75% of the
purchase price of such shares. For periods after the first year, ZKDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of .75% of net assets attributable to Class C
shares maintained and serviced by the firm. ZKDI is compensated by KVF for
services as distributor and principal underwriter for Class C shares. See
"Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in KVF or any Kemper Mutual Fund listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of KVF for their clients, and ZKDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. ZKDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
KVF.
ZKDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over' of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
ZKSVC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by ZKDI in acknowledgment of their
dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, ZKDI will, from
time to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of KVF. Non-cash compensation includes luxury merchandise and trips to luxury
resorts. In some instances, such discounts, commissions or other incentives will
be offered only to certain firms that sell or are expected to sell during
specified time periods certain minimum amounts of shares of KVF, or other funds
underwritten by ZKDI.
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<PAGE> 37
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by ZKDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by ZKDI prior to the close of its business day will
be confirmed at a price based on the net asset value effective on that day
("trade date"). KVF reserves the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem KVF's shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
KVF's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, KVF's transfer agent will have no information with
respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from KVF through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of ZKDI,
may receive compensation from KVF through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
KVF reserves the right to withdraw all or any part of the offering made by this
prospectus and to reject purchase orders. Also, from time to time, KVF may
temporarily suspend the offering of shares of any Fund or class of a Fund to new
investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such Fund or class and to have dividends
reinvested.
Shareholders should direct their inquiries to Zurich Kemper Service Company, 811
Main Street, Kansas City, Missouri 64105-2005 or to the firm from which they
received this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require KVF to redeem his or her shares. When
shares are held for the account of a shareholder by KVF's transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
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<PAGE> 38
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When KVF is asked to redeem shares for which it may not have yet received good
payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct Deposit), it
may delay transmittal of redemption proceeds until it has determined that
collected funds have been received for the purchase of such shares, which will
be up to 10 days from receipt by KVF of the purchase amount. The redemption
within two years of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge (see "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares"), the redemption of Class B shares within six years may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge--Class B
Shares" below) and the redemption of Class C shares within the first year
following purchase may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge--Class C Shares" below).
Because of the high cost of maintaining small accounts, effective January 1998,
KVF may assess a quarterly fee of $9 on an account with a balance below $1,000
for the quarter. The fee will not apply to accounts enrolled in an automatic
investment program, Individual Retirement Accounts or employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. KVF or its agents may be liable for any
losses, expenses or costs arising out of fraudulent or unauthorized telephone
requests pursuant to these privileges, unless KVF or its agents reasonably
believe, based upon reasonable verification procedures, that the telephone
instructions are genuine.
THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, including loss resulting from
fraudulent or unauthorized transactions, so long as the reasonable verification
procedures are followed. The verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to
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<PAGE> 39
use the telephone redemption privilege, although investors can still redeem by
mail. KVF reserves the right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to ZKDI, which KVF has authorized to act as its agent. There is no
charge by ZKDI with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable Fund next determined after receipt
of a request by ZKDI. However, requests for repurchases received by dealers or
other firms prior to the determination of net asset value (see "Net Asset
Value") and received by ZKDI prior to the close of ZKDI's business day will be
confirmed at the net asset value effective on that day. The offer to repurchase
may be suspended at any time. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by KVF for up to seven days if
ZKVA deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. KVF is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. KVF currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of KVF were purchased. Shares purchased by
check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by
wire transfer until such shares have been owned for at least 10 days. Account
holders may not use this privilege to redeem shares held in certificated form.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the expedited wire transfer redemption
privilege. KVF reserves the right to terminate or modify this privilege at any
time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under KVF's Systematic Withdrawal Plan at a maximum of 10% per year
of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies ZKDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
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<PAGE> 40
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
--------------------------------- ----------
<S> <C>
First....................................................... 4%
Second...................................................... 3%
Third....................................................... 3%
Fourth...................................................... 2%
Fifth....................................................... 2%
Sixth....................................................... 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund, (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Internal Revenue Code and (d)
redemptions representing returns of excess contributions to such plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemptions by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent; (c) redemption of shares of a
shareholder (including a registered joint owner) who has died; (d) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration); (e) redemptions
under KVF's Systematic Withdrawal Plan at a maximum of 10% per year of the net
asset value of the account; (f) any participant-directed redemption of shares
held by employer sponsored employee benefit plans maintained on the subaccount
record keeping system made available by the Shareholder Service Agent; and (g)
redemption of shares by an employer sponsored employee benefit plan that offers
funds in addition to Kemper Funds and whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
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<PAGE> 41
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation
is subject to the charge. The charge would be at the rate of 3% ($300) because
it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a monthly basis. The period of ownership for this purpose begins the first day
of the month in which the order for the investment is received. For example, an
investment made in May, 1997 will be eligible for the 3% charge if redeemed on
or after May 1, 1998. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. ZKDI receives any contingent deferred
sales charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or a
Kemper Mutual Fund who redeems Class A shares purchased under the Large Order
NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in Class A, Class B or Class C
shares, as the case may be, of a Fund or of other Kemper Mutual Funds. The
amount of any contingent deferred sales charge also will be reinvested. These
reinvested shares will retain their original cost and purchase date for purposes
of the contingent deferred sales charge. Also, a holder of Class B shares who
has redeemed shares may reinvest up to the full amount redeemed, less any
applicable contingent deferred sales charge that may have been imposed upon the
redemption of such shares, at net asset value in Class A shares of a Fund or of
the Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of a Fund, the reinvestment in the same
Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Fund, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund (available only upon
exchange or conversion from Class A shares of another Kemper Mutual Fund),
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund and Kemper
Value Fund, Inc., Kemper Value+Growth Fund, Kemper Quantitative Equity Fund,
Kemper Horizon Fund, Kemper Europe Fund, Kemper
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<PAGE> 42
Asian Growth Fund and Kemper Aggressive Growth Fund ("Kemper Mutual Funds").
Except as noted below, there is no combined purchase credit for direct purchases
of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California
Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Mutual Funds" for purposes hereof. For purposes of the Combined Purchases
feature described above as well as for the Letter of Intent and Cumulative
Discount features described below, employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent may include: (a) Money Market Funds as "Kemper Mutual
Funds", (b) all classes of shares of any Kemper Mutual Fund and (c) the value of
any other plan investment, such as guaranteed investment contracts and employer
stock, maintained on such subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by ZKDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or ZKDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with ZKDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual Fund or a Money Market
Fund under the exchange privilege described
36
<PAGE> 43
above without paying any contingent deferred sales charge at the time of
exchange. If the Class A shares received on exchange are redeemed thereafter, a
contingent deferred sales charge may be imposed in accordance with the foregoing
requirements provided that the shares redeemed will retain their original cost
and purchase date for purposes of the contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class B shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis. Shareholders interested in exercising the exchange privilege may
obtain prospectuses of the other funds from dealers, other firms or ZKDI.
Exchanges may be accomplished by a written request to ZKSVC, Attention: Exchange
Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by telephone
if the shareholder has given authorization. Once the authorization is on file,
the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Kemper Funds that are eligible for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and the portfolios of Investors Municipal Cash Fund are available for
sale only in certain states. Except as otherwise permitted by applicable
regulations, 60 days' prior written notice of any termination or material change
will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Fund, a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
37
<PAGE> 44
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their KVF account and transfer the proceeds to their bank, savings
and loan, or credit union checking account. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
until such shares have been owned for at least 10 days. By enrolling in EXPRESS-
Transfer, the shareholder authorizes the Shareholder Service Agent to rely upon
telephone instructions from ANY PERSON to transfer the specified amounts between
the shareholder's KVF account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares--General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday, 8:00 a.m. to 3:00 p.m.
Chicago time. Shareholders may terminate this privilege by sending written
notice to ZKSVC, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
will become effective as soon as the Shareholder Service Agent has had a
reasonable time to act upon the request. EXPRESS-Transfer cannot be used with
passbook savings accounts or for tax-deferred plans such as Individual
Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50 and maximum $50,000) from
the shareholder's account at a bank, savings and loan or credit union into the
shareholder's KVF account. By enrolling in Bank Direct Deposit, the shareholder
authorizes KVF and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to ZKSVC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. KVF may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. KVF may terminate or modify this
privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a KVF account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) KVF is not responsible for the efficiency of the employer
or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares (and Class A shares purchased under the Large Order NAV Purchase
Privilege and Class C shares in the first year following the purchase) may be
redeemed under a systematic withdrawal plan is 10% of the net asset value of the
account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, KVF will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time
38
<PAGE> 45
making systematic withdrawals. ZKDI will waive the contingent deferred sales
charge on redemptions of Class A shares purchased under the Large Order NAV
Purchase Privilege, Class B shares and Class C shares made pursuant to a
systematic withdrawal plan. The right is reserved to amend the systematic
withdrawal plan on 30 days' notice. The plan may be terminated at any time by
the investor or KVF.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and ZKDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") IRA
accounts and Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.
- - 403(b)(7) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
PERFORMANCE
KVF may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of the Funds.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Standard &
Poor's/Barra Value Index, the Russell 1000 Value Index and the Russell 2000
Value Index. The performance of a Fund may also be compared to the combined
performance of two indexes. The performance of a Fund may also be compared to
the performance of other mutual funds or mutual fund indexes with similar
objectives and policies as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper performance
calculations are based upon changes in net asset value with all dividends
reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon,
39
<PAGE> 46
among other things, the BANK RATE MONITOR National Index(TM) or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured.
A Fund may depict the historical performance of the securities in which a Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund. A Fund may also discuss the relative performance of
growth stocks versus value stocks.
Each Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of the Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from KVF.
CAPITAL STRUCTURE
KVF was organized as a Maryland corporation in October, 1987 and has an
authorized capitalization of 3,000,000,000 shares of $.01 par value common
stock. In July, 1997, KVF changed its name from Kemper-Dreman Fund, Inc. to
Kemper Value Fund, Inc. In September, 1995, KVF changed its name from Dreman
Mutual Group, Inc. to Kemper-Dreman Fund, Inc. Since KVF may offer multiple
funds, it is known as a "series company." Currently, KVF offers four classes of
shares of each Fund. These are Class A, Class B and Class C shares, as well as
Class I shares, which have different expenses, that may affect performance, and
are available for purchase exclusively by the following investors: (a)
tax-exempt retirement plans of ZKI and its affiliates; and (b) the following
investment advisory clients of ZKI and its investment advisory affiliates that
invest at least $1 million in a Fund: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. The Board of Directors may authorize the issuance of
additional classes and additional Funds if deemed desirable, each with its own
investment objectives, policies and restrictions. Shares of a Fund have equal
noncumulative voting rights except that Class B and Class C shares have separate
and exclusive voting rights with respect to the Rule 12b-1 Plan. Shares of each
class also have equal rights with respect to dividends, assets and liquidation
of such Fund subject to any preferences (such as resulting from different Rule
12b-1 distribution fees), rights or privileges of any classes of shares of the
Fund. Shares of each Fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Board of Directors
40
<PAGE> 47
of KVF may, to the extent permitted by applicable law, have the right at any
time to redeem from any shareholder, or from all shareholders, all or any part
of any series or class, or of all series or classes, of the shares of KVF.
The Funds are not required to hold annual shareholder meetings and do not intend
to do so. However, they will hold special meetings as required or deemed
desirable for such purposes as electing directors, changing fundamental policies
or approving an investment management agreement. KVF will call a meeting of
shareholders, if requested to do so by the holders of at least 10% of KVF's
outstanding shares and, in the case of a meeting called to consider removal of a
director or directors, will assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940. If shares of
more than one Fund are outstanding, shareholders will vote by Fund and not in
the aggregate or by class except when voting in the aggregate is required under
the Investment Company Act of 1940, such as for the election of directors, or
when voting by class is appropriate.
41
<PAGE> 48
NOVEMBER 22, 1997
KEMPER
CONTRARIAN FUND
KEMPER-DREMAN
HIGH RETURN EQUITY FUND
KEMPER
SMALL CAP VALUE FUND
KEMPER MID CAP VALUE FUND
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
[KEMPER FUNDS LOGO]
DRE-1 (11/97) [RECYCLED PAPER LOGO]
ZKDI 705200
<PAGE> 49
KEMPER-DREMAN FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
-------------- --------
<S> <C> <C>
PART B STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Cover Page
Item 13. Investment Objectives and Policies... Investment Restrictions; Investment Policies and
Techniques
Item 14. Management of the Fund............... Investment Manager and Underwriter; Officers and
Directors
Item 15. Control Persons and Principal Holders
of Securities........................ Officers and Directors--Principal Holders of
Securities
Item 16. Investment Advisory and Other
Services............................. Investment Manager and Underwriter; Distribution and
Servicing Arrangements
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities... Dividends and Taxes; Shareholders Rights
Item 19. Purchase, Redemption and Price of
Securities Being Offered............. Purchase and Redemption of Shares
Item 20. Tax Status........................... Dividends and Taxes
Item 21. Underwriters......................... Investment Manager and Underwriter
Item 22. Calculation of Performance Data...... Performance
Item 23. Financial Statements................. Financial Statements
</TABLE>
<PAGE> 50
KEMPER VALUE FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 22, 1997
KEMPER CONTRARIAN FUND ("CONTRARIAN FUND")
KEMPER-DREMAN HIGH RETURN EQUITY FUND ("HIGH RETURN EQUITY FUND")
KEMPER SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
KEMPER MID CAP VALUE FUND ("MID CAP VALUE FUND")
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the above funds (the "Funds") of
the Kemper Value Fund, Inc. ("KVF"). It should be read in conjunction with the
prospectus of KVF dated November 22, 1997. The prospectus may be obtained
without charge from KVF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions..................................... B-1
Investment Policies and Techniques.......................... B-2
Portfolio Transactions...................................... B-8
Investment Manager and Underwriter.......................... B-11
Purchase and Redemption of Shares........................... B-16
Dividends and Taxes......................................... B-17
Performance................................................. B-18
Officers and Directors...................................... B-24
Report of Independent Auditors ( , 1997).............. B-30
Statement of Net Assets ( , 1997)..................... B-31
Appendix--Ratings of Fixed Income Investments............... B-32
</TABLE>
The financial statements appearing in KVF's 1996 Annual Report to Shareholders
are incorporated herein by reference. The financial statements for KVF accompany
this document.
DRE-13 (11/97) (RECYCLE LOGO) printed on recycled paper
<PAGE> 51
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50% of
the outstanding shares of the Fund.
A FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any one issuer other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
collectively ("U.S. Government Securities") if immediately thereafter more than
5% of its total assets would be invested in the securities of any one issuer, or
purchase more than 10% of an issuer's outstanding securities, except that up to
25% of each Fund's total assets may be invested without regard to these
limitations.
(2) For the Contrarian, High Return Equity and Small Cap Value Funds, borrow
money or issue senior securities, except that each Fund may borrow from banks
for temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in amounts not in excess of
the lesser of the amount borrowed or 10% of the value of its total assets at the
time of such borrowing; provided that the Funds may enter into futures contracts
and related options as described in the prospectus. Optioned securities are not
considered to be pledged for purposes of this limitation.
(3) For the Mid Cap Value Fund, borrow money or issue senior securities, except
that the Fund may borrow from banks for temporary purposes in amounts not in
excess of one-third ( 1/3) of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing or in connection with options and futures contracts.
(4) Purchase any securities which would cause more than 25% of the value of its
total assets at the time of purchase to be invested in the securities of issuers
conducting their principal activities in the same industry.
(5) For the Contrarian, High Return Equity and Small Cap Value Funds, invest
more than 10% of the value of its net assets in illiquid securities, including
restricted securities and repurchase agreements with remaining maturities in
excess of seven days, and other securities for which market quotations are not
readily available.
(6) Make loans, except that each Fund may lend securities it owns as described
herein and enter into repurchase agreements pursuant to its investment objective
and policies.
(7) Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and make
initial and variation margin deposits in connection therewith.
(8) Purchase or sell commodities or commodity contracts, except futures
contracts and options thereon as stated in the prospectus, or, for the
Contrarian, High Return Equity and Small Cap Value Funds only, invest in oil,
gas or mineral exploration or development programs, or in real estate or
mortgage loans provided that the Funds may, to the extent appropriate to their
investment objectives, purchase publicly traded securities of companies engaging
in whole or in part in such activities.
(9) Engage in the business of underwriting securities issued by others, except
that each Fund may acquire securities which are subject to restrictions on
disposition ("restricted securities") within the meaning of the Securities Act
of 1933.
B-1
<PAGE> 52
THE FUNDS MAY NOT, AS A NON-FUNDAMENTAL POLICY:
(1) Invest for the purpose of exercising control over management of any company.
(2) Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in connection
with a merger, acquisition of assets, consolidation or reorganization, and any
investments in the securities of other investment companies will be in
compliance with the Investment Company Act of 1940.
The Contrarian, High Return Equity and Small Cap Value Funds may not, as a
non-fundamental policy:
(1) Purchase or retain securities of an issuer if the officers and directors of
KVF and/or the officers and directors of the investment manager who own more
than 1/2 of 1% of such securities together own more than 5% of such securities.
(2) Invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation.
(3) Invest more than 5% of its net assets in warrants, including within that
amount no more than 2% in warrants which are not listed on the New York or
American Stock Exchanges except warrants acquired as a result of its holdings of
common stocks.
(4) Purchase an interest in a real estate investment trust.
(5) Purchase more than 10% of the voting securities of any issuer or purchase
oil, gas or mineral leases.
The Mid-Cap Value Fund may not, as a non-fundamental policy:
Invest more than 15% of the value of its net assets in illiquid securities.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in options and financial futures and other
derivatives transactions in accordance with its respective investment objectives
and policies. Each such Fund intends to engage in such transactions if it
appears to the investment manager to be advantageous to do so in order to pursue
its investment objective and also to hedge against the effects of market risks
but not for speculative purposes. The use of futures and options, and possible
benefits and attendant risks, are discussed below along with information
concerning other investment policies and techniques.
OPTIONS ON SECURITIES. A Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. A Fund (other than the Contrarian Fund) may write "covered" put
options provided that, as long as the Fund is obligated as a writer of a put
option, the Fund will own an option to sell the underlying securities subject to
the option, having an exercise price equal to or greater than the exercise price
of the "covered" option, or it will deposit and maintain in a segregated account
eligible securities having a value equal to or greater than the exercise price
of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Funds may write, and
the Mid Cap Value Fund may also purchase, spread options, which are options for
which the exercise price may be
B-2
<PAGE> 53
a fixed dollar spread or yield spread between the security underlying the option
and another security that is used as a bench mark. The exercise price of an
option may be below, equal to or above the current market value of the
underlying security at the time the option is written. The buyer of a put who
also owns the related security is protected by ownership of a put option against
any decline in that security's price below the exercise price less the amount
paid for the option. The ability to purchase put options allows the Mid Cap
Value Fund to protect capital gains in an appreciated security it owns, without
being required to actually sell that security. At times the Mid Cap Value Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, the Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because the Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Mid Cap Value Fund 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 the 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, the 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 the 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.
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<PAGE> 54
The Fund understands 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 Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Fund's portfolio. A brief description of
such procedures is set forth below.
The 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 Directors. The investment manager believes that
the approved dealers should be able to enter into closing transactions if
necessary and, therefore, present minimal credit risks to the Fund. The
investment manager will monitor the creditworthiness of the approved dealers on
an ongoing basis. The Fund currently will not engage in OTC options transactions
if the amount invested by the Fund in OTC options, plus 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 Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the 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 the 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. Each Fund may write call options on securities
indices, and each Fund other than the Contrarian Fund may write put options on
securities indices, and the Mid Cap Value Fund may purchase call and put options
on securities indices in an attempt to hedge against market conditions affecting
the value of securities that the Fund owns or intends to purchase, and not for
speculation. Through the writing or purchase of index options, a Fund can
achieve many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of an
index since the prices of such securities may be affected by somewhat different
factors and, therefore, the Fund bears the risk that a loss on an index option
would not be completely offset by movements in the price of such securities.
When a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
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<PAGE> 55
A Fund may also deal in options on other appropriate indices, as available, such
as foreign currency indices. Options on a securities index involve risks similar
to those risks relating to transactions in financial futures contracts described
below. Also, an option purchased by the Mid Cap Value 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 of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. A
Fund will incur brokerage fees when it purchases or sells contracts, and will be
required to maintain margin deposits. At the time a Fund enters into a futures
contract, it is required to deposit with its custodian, on behalf of the broker,
a specified amount of cash or eligible securities, called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Fund's return. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets or exchange rates is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Fund may write call options on
financial futures contracts; each Fund other than the Contrarian Fund may write
put options on financial futures contracts; and the Mid Cap Value Fund may
purchase call and put options on financial futures contracts. An option on a
futures contract
B-5
<PAGE> 56
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. A Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Mid Cap Value Fund may expire
worthless, in which case the Fund would lose the premium paid therefor.
LENDING PORTFOLIO SECURITIES. A Fund may lend its portfolio securities to
brokers, dealers and institutional investors who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a portfolio can increase its income by the receipt of interest
on the loan. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would accrue to the Fund. Securities'
loans will be made on terms which require that (a) the borrower pledge and
maintain (on a daily basis) with the Fund collateral consisting of cash, a
letter of credit or United States Government securities having a value at all
times not less than 100% of the value of the securities loaned, (b) the loan can
be terminated by the Fund at any time, (c) the Fund receives reasonable interest
on the loan which may include the Fund's investing any cash collateral in
interest bearing short-term investments), and (d) any distributions on the
loaned securities must be paid to the Fund. The Fund will not lend its
securities if, as a result, the aggregate of such loans exceeds 33% of the value
of the Fund's total assets. Loan arrangements made by a Fund will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. All relevant
facts and circumstances, including the credit worthiness of the broker, dealer
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by KVF's Board of Directors. While
voting rights may pass with the loaned securities, if a material event occurs
affecting an investment on loan, the loan must be called and the securities
voted. KVF does not intend to lend securities of any Fund if as a result more
than 5% of the net assets of the Fund would be on loan.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract or writing a put option, a Fund
will maintain eligible securities in a segregated account. A Fund will use cover
in connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities that the
Fund holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Mid Cap Value Fund 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 the 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 has
entered into a contract to
B-6
<PAGE> 57
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 its financial futures
transactions, the Mid Cap Value Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Mid Cap Value Fund may engage
in forward foreign currency transactions. 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 the Fund. The Fund will
not speculate in foreign currency exchange.
If the 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 the 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 which might result should the value of such currency increase.
The Fund will 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.
The 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. See "Foreign Currency Transactions" under
"Investment Objectives, Policies and Risk Factors--Additional Investment
Information" in the prospectus. The Mid Cap Value Fund does not intend to enter
into such forward contracts if it would have more than 15% of the value of its
total assets committed to such contracts. The 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. If the value of the securities segregated declines, additional
cash or securities are added so that the segregated amount is not less than the
amount of the Fund's commitments with respect to such contracts. The Fund
generally does not enter into a forward contract with a term longer than one
year.
OTHER CONSIDERATIONS--HIGH YIELD (HIGH RISK) BONDS. As reflected in the
prospectus, the Mid Cap Value 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
B-7
<PAGE> 58
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 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
ZKVA AND ZIML
ZKVA, Zurich Kemper Investments, Inc. ("ZKI") (ZKVA's parent company), and its
affiliates furnish investment management services for the Kemper Funds, Zurich
Money Funds and other clients including affiliated insurance companies. Zurich
Investment Management Limited ("ZIML") is a sub-adviser for the Mid Cap Value
Fund and other Kemper Funds. ZKI and its affiliates share some common research
and trading facilities. At times investment decisions may be made to purchase or
sell the same investment securities for the Funds and for one or more of the
other clients managed by ZKVA or its affiliates. When two or more of such
clients are simultaneously engaged in the purchase or sale of the same security
through the same trading facility, the transactions are allocated as to amount
and price in a manner considered equitable to each.
B-8
<PAGE> 59
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options KVF
will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to the Funds. On
the other hand, the ability of the Funds to participate in volume transactions
may produce better executions for the Funds in some cases. The Board of
Directors believes that the benefits of ZKVA's and ZIML's organizations outweigh
any limitations that may arise from simultaneous transactions or position
limitations.
ZKVA and ZIML, in effecting purchases and sale of portfolio securities for the
account of the Funds, will implement the Funds' policy of seeking best execution
of orders. ZKVA and ZIML may be permitted to pay higher brokerage commissions
for research services as described below. Consistent with this policy, orders
for portfolio transactions are placed with broker-dealer firms giving
consideration to the quality, quantity and nature of each firm's professional
services, which include execution, financial responsibility, responsiveness,
clearance procedures, wire service quotations and statistical and other research
information provided to the Funds and ZKVA and its affiliates. Subject to
seeking best execution of an order, brokerage is allocated on the basis of all
services provided. Any research benefits derived are available for all clients,
including clients of ZKVA and its affiliates. In selecting among firms believed
to meet the criteria for handling a particular transaction, DVA may give
consideration to those firms that have sold or are selling shares of the Funds
and of other funds managed by ZKVA or its affiliates, as well as to those firms
that provide market, statistical and other research information to the Funds and
ZKVA and its affiliates, although ZKVA and ZIML are not authorized to pay higher
commissions to firms that provide such services, except as described below.
ZKVA and ZIML may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation and execution equipment and software; and
research or analytical computer software and services. ZKVA and ZIML may attempt
to direct sufficient commissions and in the case of transactions for certain
types of clients, dealer selling concessions on new issues of securities, to
ensure the continued receipt of such research products and services. Where
products or services have a "mixed use," a good faith effort is made to make a
reasonable allocation of the cost of products or services in accordance with the
anticipated research and non-research uses and the cost attributable to
non-research use is paid by ZKVA or one of its affiliates in cash. Subject to
Section 28(e) and procedures adopted by the Board of Directors of KVF, the Funds
could pay a firm that provides research services commissions for effecting a
securities transaction for the Funds in excess of the amount other firms would
have charged for the transaction if ZKVA or ZIML determines in good faith that
the greater commission is reasonable in relation to the value of the brokerage
and research services provided by the executing firm viewed in terms either of a
particular transaction or ZKVA's or ZIML's overall responsibilities to the Funds
and other clients. Not all of such research services may be useful or of value
in advising the Funds. Research benefits will be available for all clients of
ZKVA and its affiliates. The investment management fee paid by the Funds to ZKVA
is not reduced because these research services are received.
DVM
Under the sub-advisory agreement between ZKVA and DVM, DVM places all orders for
purchases and sales of the High Return Equity Fund's securities. At times
investment decisions may be made to purchase or sell the same investment
securities of the Fund and for one or more of the other clients managed by DVM.
When two or more of such clients are simultaneously engaged in the purchase or
sale of the same security through the same trading facility, the transactions
are allocated as to amount and price in a manner considered equitable to each.
As mentioned above, position limits imposed by national securities exchanges may
restrict the number of options the Fund will be able to write on a particular
security.
B-9
<PAGE> 60
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or future contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases. The Board of Directors
believes that the benefits of DVM's organization outweigh any limitations that
may arise from simultaneous transactions or position limitations.
DVM, in effecting purchases and sale of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders.
DVM may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
execution, financial responsibility, responsiveness, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and DVM. Subject to seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients of DVM. In selecting among firms believed to meet
the criteria for handling a particular transaction, DVM may give consideration
to those firms that have sold or are selling shares of the Fund and of other
funds managed by ZKVA and its affiliates, as well as to those firms that provide
market, statistical and other research information to the Fund and DVM, although
DVM is not authorized to pay higher commissions to firms that provide such
services, except as described below.
DVM may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services as defined
in Section 28(e) of the Securities Exchange Act of 1934 and interpretations
thereunder. Such services may include among other things: economic, industry or
company research reports or investment recommendations; computerized databases;
quotation and execution equipment and software; and research or analytical
computer software and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by DVM
in cash. Subject to Section 28(e) and procedures adopted by the Board of
Directors of KVF, the Fund could pay a firm that provides research services
commissions for effecting a securities transaction for the Fund in excess of the
amount other firms would have charged for the transaction if DVM determines in
good faith that the greater commission is reasonable in relation to the value of
the brokerage and research services provided by the executing firm viewed in
terms either of a particular transaction or DVM's overall responsibilities to
the Fund and other clients. Not all of such research services may be useful or
of value in advising the Fund. Research benefits will be available for all
clients of DVM. The sub-advisory fee paid by ZKVA to DVM is not reduced because
these research services are received.
BROKERAGE COMMISSIONS
The table below shows total brokerage commissions paid by the Contrarian, High
Return Equity and Small Cap Value Funds for the last three fiscal 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 1996 FISCAL 1996 FISCAL 1995 FISCAL 1994
---- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund................................... $157,000 0% $15,000 $11,000
High Return Equity Fund........................... $489,000 0% $40,000 $21,000
Small Cap Value Fund.............................. $365,000 0% $58,000 $32,000
</TABLE>
The increase in the dollar amount of brokerage commissions paid by the Funds
during the 1996 fiscal year was primarily due to the increase in the amount of
assets under management of each Fund.
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<PAGE> 61
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Value Advisors, Inc. ("ZKVA"), 280 Park
Avenue, 40(th) Floor, New York, New York 10017, is the investment manager of
each Fund. ZKVA is a wholly-owned subsidiary of Zurich Kemper Investments, Inc.
("ZKI"). ZKI is wholly owned by ZKI Holding Corp. ZKI Holding Corp. is a more
than 90% owned subsidiary of Zurich Holding Company of America, Inc., which is a
wholly owned subsidiary of Zurich Insurance Company, 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. Pursuant to an investment management agreement, ZKVA acts as the
investment adviser of each Fund, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical,
bookkeeping and administrative services, and permits any of its officers or
employees to serve without compensation as directors or officers of KVF if
elected to such positions. The investment management agreement provides that
each Fund pays the charges and expenses of its operations, including the fees
and expenses of the directors (except those who are affiliates of ZKVA or its
affiliates), independent auditors, counsel, custodian and transfer agent and the
cost of share certificates, reports and notices to shareholders, brokerage
commissions or transaction costs, costs of calculating net asset value, taxes
and membership dues. KVF bears the expenses of registration of its shares with
the Securities and Exchange Commission, while Zurich Kemper Distributors, Inc.,
as principal underwriter, pays the cost of qualifying and maintaining the
qualification of each Fund's shares for sale under the securities laws of the
various states. ZKVA has agreed to reimburse each Fund to the extent required by
applicable state expense limitations should all operating expenses of the Fund,
including the investment management fees of ZKVA but excluding taxes, interest,
distribution fees, extraordinary expenses, brokerage commissions or transaction
costs and any other properly excludable expenses, exceed the applicable state
expense limitations. Currently, there are no state expense limitations in
effect.
The investment management agreement provides that ZKVA 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
ZKVA in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement.
The Funds' investment management agreement continues in effect from year to year
so long as its continuation is approved at least annually by (a) a majority of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of KVF, and (b) by the
shareholders or the Board of Directors of KVF. The investment management
agreement may be terminated at any time upon 60 days notice by either party, or
by a majority vote of the outstanding shares of each Fund for that Fund, and
will terminate automatically upon assignment.
The current investment management fee rates paid by the Funds are in the
prospectus under "Investment Manager and Underwriter." Prior to August 24, 1995,
the Contrarian, High Return Equity and Small Cap Value Funds paid the former
adviser an investment management fee at the annual rate of 1.00% of average
daily net assets of the Fund up to $1 billion in net assets and .75% thereafter.
The table below shows the total investment management fees paid by the
Contrarian, High Return Equity and Small Cap Value Funds to ZKVA (or the former
adviser for the Funds) for the last three fiscal years.
<TABLE>
<CAPTION>
FUND FISCAL 1996 FISCAL 1995 FISCAL 1994
---- ----------- ----------- -----------
<S> <C> <C> <C>
Contrarian Fund............................................. $ 400,000 $119,000 $155,000
High Return Equity Fund..................................... $2,430,000 $369,000 $320,000
Small Cap Value Fund........................................ $ 943,000 $ 90,000 $ 64,000
</TABLE>
B-11
<PAGE> 62
MID CAP VALUE FUND SUB-ADVISER. ZIML, 1 Fleet Place, London, U.K. EC4M 7RQ, an
indirect subsidiary of Zurich Insurance Company, is the sub-adviser for the
foreign securities portion of the Mid Cap Value Fund. ZIML acts as sub-adviser
for the Mid Cap Value Fund pursuant to the terms of a Sub-Advisory Agreement
between it and ZKVA.
Under the terms of the Sub-Advisory Agreement, ZIML renders investment advisory
and management services with regard to that portion of the Fund's portfolio as
may be allocated to ZIML by ZKVA from time to time for management of foreign
securities, including foreign currency transactions and related investments.
ZIML may, under the terms of the Sub-Advisory Agreement, render similar services
to others including other investment companies. For its services, ZIML will
receive from ZKVA a monthly fee at the annual rate of .35% of the portion of the
average daily net assets of the Fund allocated by ZKVA to ZIML for management.
ZIML permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions.
The Sub-Advisory Agreement provides that ZIML will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZIML in the performance of its duties or from reckless disregard by ZIML of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement continues in effect from year to year so long as its
continuation is approved at least annually (a) by a majority of the directors
who are not parties to such agreement or interested persons of any such party
except in their capacity as directors of the Fund and (b) by the shareholders or
the Board of Directors. The Sub-Advisory Agreement may be terminated at any time
for the Fund upon 60 days notice by ZKVA, ZIML or the Board of Directors, or by
a majority vote of the outstanding shares of the Fund, and will terminate
automatically upon assignment or upon the termination of the Fund's investment
management agreement. If additional Funds become subject to the Sub-Advisory
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.
HIGH RETURN EQUITY FUND SUB-ADVISER. Dreman Value Management, L.L.C. ("DVM"),
Three Harding Road, Red Bank, New Jersey 07701, is the sub-adviser for the High
Return Equity Fund. DVM is controlled by David N. Dreman. DVM serves as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
ZKVA.
Under the terms of the Sub-Advisory Agreement, DVM manages the investment and
reinvestment of the High Return Equity Fund's portfolio and will provide such
investment advice, research and assistance as ZKVA may, from time to time,
reasonably request. The current sub-advisory fee rates paid by ZKVA to DVM are
in the prospectus under "Investment Manager and Underwriter."
The Sub-Advisory Agreement provides that DVM will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVM in the performance of its duties or from reckless disregard by DVM of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement remains in effect until December 31, 2002 unless
sooner terminated or not annually approved as described below. Notwithstanding
the foregoing, the Sub-Advisory Agreement shall continue in effect through
December 31, 2002 and year to year thereafter, but only as long as such
continuance is specifically approved at least annually (a) by a majority of the
directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund, and (b) by the
shareholders or the Board of Directors of the Fund. The Sub-Advisory Agreement
may be terminated at any time upon 60 days' notice by ZKVA or by the Board of
Directors of the Fund or by majority vote of the
B-12
<PAGE> 63
outstanding shares of the Fund, and will terminate automatically upon assignment
or upon termination of the Fund's investment management agreement. DVM may not
terminate the Sub-Advisory Agreement prior to June , 2000. Thereafter, DVM may
terminate the Sub-Advisory Agreement upon 90 days' notice to ZKVA.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Zurich Kemper Distributors, Inc. ("ZKDI"),
an affiliate of ZKVA and a wholly owned subsidiary of ZKI, is the principal
underwriter and distributor for the shares KVF and acts as agent of KVF in the
continuous offering of its shares. ZKDI bears all its expenses of providing
services pursuant to the distribution agreement, including the payment of any
commissions. KVF pays the cost for the prospectus and shareholder reports to be
set in type and printed for existing shareholders, and ZKDI, as principal
underwriter, pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. ZKDI also pays
for supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Directors of KVF, including the Directors who are not interested persons of
KVF and who have no direct or indirect financial interest in the agreement. The
agreement automatically terminates in the event of its assignment and may be
terminated for a class at any time without penalty by a Fund for that Fund or by
ZKDI upon 60 days' notice. Termination by a Fund with respect to a class may be
by vote of a majority of the Board of Directors, or a majority of the Directors
who are not interested persons of KVF and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the class of KVF, as defined under the Investment Company Act of
1940. The agreement may not be amended for a class to increase the fee to be
paid by a Fund with respect to such class without approval by a majority of the
outstanding voting securities of such class of a Fund and all material
amendments must in any event be approved by the Board of Directors in the manner
described above with respect to the continuation of the agreement.
Prior to September 11, 1995, Fund/Plan Broker Services, Inc. ("FBS"), served as
the underwriter of KVF's shares, pursuant to an underwriting agreement which
became effective January 4, 1993. Under the agreement, FBS was the exclusive
agent for KVF's continuous offer of shares. Prior to September 11, 1995, shares
of KVF were offered to the public at net asset value, without a sales load. No
underwriting commissions were associated with sales of Fund shares for the
fiscal year ended December 31, 1994 and for the period January 1, 1995 to
September 10, 1995.
B-13
<PAGE> 64
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of Class A shares of the Contrarian,
High Return Equity and Small Cap Value Funds for the periods noted.
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
COMMISSIONS RETAINED UNDERWRITER PAID TO
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS AFFILIATED FIRMS
---- ----------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund........................... 1996 $ 65,000 $ 462,000 $ 41,000
1995* $ -- $ 117,000 $ 6,000
High Return Equity Fund................... 1996 $601,000 $4,531,000 $356,000
1995* $ -- $ 427,000 $ 52,000
Small Cap Value Fund...................... 1996 $231,000 $1,734,000 $114,000
1995* $ -- $ 178,000 $ 13,000
</TABLE>
*Amounts paid from September 11, 1995 through December 31, 1995.
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides
for fees charged to Class B and Class C shares that are used by ZKDI 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 Contrarian, High Return Equity and Small Cap Value
Funds and of ZKDI 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>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS B SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 1996 $ 95,000** 15,000 584,000 15,000
1995* $ 7,000 -- 172,000 12,000
High Return Equity
Fund............... 1996 $750,000** 127,000 7,215,000 126,000
1995* $ 15,000 1,000 455,000 57,000
Small Cap Value
Fund............... 1996 $191,000** 52,000 2,299,000 47,000
1995* $ 8,000 1,000 208,000 13,000
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS B SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 148,000 9,000 293,000 57,000 74,000
14,000 3,000 34,000 5,000 3,000
High Return Equity
Fund............... 1,186,000 75,000 2,455,000 468,000 422,000
35,000 9,000 75,000 13,000 7,000
Small Cap Value
Fund............... 391,000 25,000 813,000 134,000 156,000
17,000 4,000 39,000 6,000 4,000
</TABLE>
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS B SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 1996 $ 2,000** 2,000 15,000 --
1995* $ -- -- -- --
High Return Equity 1996
Fund............... $ 96,000** 3,000 281,000 --
1995* $ 1,000 -- 1,000 --
Small Cap Value 1996
Fund............... $ 48,000 1,000 130,000 --
1995* $ 1,000 -- 1,000 --
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS B SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 20,000 1,000 41,000 6,000 3,000
-- 1,000 -- -- --
High Return Equity
Fund............... 202,000 13,000 237,000 55,000 22,000
5,000 1,000 11,000 2,000 --
Small Cap Value
Fund............... 103,000 7,000 136,000 35,000 12,000
4,000 1,000 10,000 2,000 --
</TABLE>
- ---------------
(1) No contingent deferred sales charges have been imposed on Class C shares
purchased prior to April 1, 1996.
* Amounts paid from September 11, 1995 through December 31, 1995.
** Amounts shown are after expense waiver.
B-14
<PAGE> 65
ADMINISTRATIVE SERVICES. Administrative services are provided to KVF under an
administrative services agreement ("administrative agreement") with ZKDI, which
became effective September 11, 1995. ZKDI bears all its expenses of providing
services pursuant to the administrative agreement between ZKDI and KVF,
including the payment of service fees. KVF pays ZKDI an administrative services
fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of the Class A, B and C shares of each Fund.
ZKDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors in KVF. The firms
provide such office space and equipment, telephone facilities and personnel as
is necessary or beneficial for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, ZKDI pays each firm a service fee,
payable quarterly, at an annual rate of up to .25% of the net assets in the
Funds' accounts that it maintains and services attributable to Class A shares,
commencing with the month after investment. With respect to Class B and Class C
shares, ZKDI 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, ZKDI currently intends to pay firms a service fee at a rate of up to .25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and C shares maintained and serviced by the firm. After the first year, a firm
becomes eligible for the quarterly service fee and the fee continues until
terminated by ZKDI or KVF. Firms to which service fees may be paid may include
affiliates of ZKDI.
The following information concerns the administrative services fee paid by each
Fund to ZKDI.
<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>
Contrarian Fund...... 1996 $ 32,000** 42,000 3,000 114,000 2,000
1995* $ 5,000 3,000 -- 16,000 1,000
High Return Equity $304,000 293,000 38,000
Fund............... 1996 941,000 19,000
1995* $ 19,000 6,000 -- 41,000 4,000
Small Cap Value...... 1996 $ 42,000** 109,000 19,000 351,000 6,000
1995* $ 7,000 3,000 -- 20,000 1,000
</TABLE>
- ---------------
* Amounts paid from September 11, 1995 through December 31, 1995.
** Amounts shown are after expense waiver.
ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Funds. Currently, the
administrative services fee payable to ZKDI is based only upon KVF assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI will pay all the administrative services fee that it receives from KVF
to firms in the form of service fees. The effective administrative services fee
rate to be charged against all assets of KVF while this procedure is in effect
will depend upon the proportion of KVF assets that is in accounts for which a
firm of record provides administrative services.
Certain directors or officers of KVF are also directors or officers of ZKVA, ZKI
or ZKDI as indicated under "Officers and Directors."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 as sub-custodian, have custody of all securities and cash of
KVF maintained in the United States. The Chase Manhattan Bank, Chase MetroTech
Center,
B-15
<PAGE> 66
Brooklyn, New York 11245, as custodian, has custody of all securities and cash
of a 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 KVF. IFTC is also the KVF transfer agent and dividend-paying
agent. Pursuant to a services agreement with IFTC, Zurich Kemper Service Company
("ZKSVC"), an affiliate of ZKVA, serves as "Shareholder Service Agent" of the
Funds, and as such, performs all of IFTC's duties as transfer agent and dividend
paying agent. IFTC receives as transfer agent, and pays to ZKSVC, annual account
fees of $6 per account plus account set up, transaction and maintenance charges,
annual fees associated with the contingent deferred sales charge (Class B shares
only) and out-of-pocket expense reimbursement. IFTC's fee is reduced by certain
earnings credits in favor of KVF. The following shows for each Fund's 1996
fiscal year (except the Mid Cap Value Fund), the shareholder service fees IFTC
remitted to ZKSVC.
<TABLE>
<CAPTION>
FEES IFTC
PAID TO ZKSVC
FUND ---------------
<S> <C>
Contrarian Fund............................................. $186,000
High Return Equity Fund..................................... $951,000
Small Cap Value Fund........................................ $541,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. KVF's independent auditors,
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audit and
report on KVF annual financial statements, review certain regulatory reports and
KVF's federal income tax returns, and perform other professional accounting,
auditing, tax and advisory services when engaged to do so by KVF. Shareholders
will receive annual audited financial statements and semi-annual unaudited
financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in KVF's 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 KVF 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 KVF at the applicable net asset value per
share of such Fund as described in KVF's 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 shares 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.
KVF 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 KVF to
determine the value of a Fund's net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
KVF's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or ruling by the Internal
Revenue Service or other assurance acceptable to KVF to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares and the assessment of the administrative services fee with
respect to each Class does not result in KVF's dividends
B-16
<PAGE> 67
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. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income and the Small Cap Value and Mid Cap
Value Funds normally distribute annual dividends of net investment income. Each
Fund distributes any net realized short-term and long-term capital gains at
least annually.
Each Fund may at any time vary the foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Directors of KVF determines appropriate
under the then current circumstances. In particular, and without limiting the
foregoing, a Fund may make additional distributions of net investment income or
capital gain net income in order to satisfy the minimum distribution
requirements contained in the Internal Revenue Code (the "Code"). Dividends will
be reinvested in shares of the Fund paying such dividends unless shareholders
indicate in writing that they wish to receive them in cash or in shares of
Kemper Funds 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. The Mid Cap Value Fund intends to qualify, and the Contrarian, High
Return Equity and Small Cap Value Funds intend 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. One of the Subchapter M requirements to be satisfied
is that less than 30% of each Fund's gross income during its fiscal year must be
derived from gains (not reduced by losses) from the sale or other disposition of
securities and certain other investments held for less than three months. A Fund
may be limited in its options and futures transactions in order to prevent
recognition of such gains.
A Fund's options and futures transactions are subject to special tax provisions
that may accelerate or defer recognition of certain gains or losses, change the
character of certain gains or losses, or alter the holding periods of certain of
a Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options, futures and forward contracts held by the
Fund at the end of the fiscal year. Under these provisions, 60% of any capital
gain net income or loss recognized will generally be treated as long-term and
40% as short-term. 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 such Fund had unrealized gains in offsetting positions at year end.
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
B-17
<PAGE> 68
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 shares held six months or less will be treated
as long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. An exchange of a Fund's shares
for shares of another fund is treated as a redemption and reinvestment for
federal income tax purposes upon which gain or loss may be recognized. A
shareholder who has redeemed shares of a Fund or other Kemper Mutual Fund listed
in the prospectus under "Special Features--Class A Shares--Combined Purchases"
(other than shares of Kemper Cash Reserves Fund not acquired by exchange from
another Kemper Mutual Fund) may reinvest the amount redeemed at net asset value
at the time of the reinvestment in shares of a Fund or in shares of a Kemper
Mutual Fund within six months of the redemption as described in the prospectus
under "Redemption or Repurchase of Shares--Reinvestment Privilege." If redeemed
shares were held less than 91 days, then the lesser of (a) the sales charge
waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realized a loss
on the redemption or exchange of a Fund's shares and reinvests in shares of the
same Fund 30 days before or after the redemption or exchange, the transactions
may be subject to the wash sale rules resulting in a postponement of the
recognition of such loss for federal income tax purposes. If a shareholder of
Class A shares redeems or otherwise disposes of such Class A shares less than
ninety-one days after they are acquired and subsequently acquires shares of the
Fund or of a Kemper Mutual Fund without payment of any sales charge (or for a
reduced sales charge) pursuant to a reinvestment privilege acquired in
connection with the Class A shares disposed of, then the sales charge on the
Class A shares disposed of (to the extent of the reduction in the sales charge
on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the Class A shares disposed of, but shall be treated
as incurred on the acquisition of the shares subsequently acquired.
Investment income derived from foreign securities and certain American
Depository Receipts may be subject to foreign income taxes withheld at the
source. Because the amount of a Fund's investments in various countries will
change from time to time, it is not possible to determine the effective rate of
such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
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 and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by a Fund have been reinvested at net asset value
on the reinvestment
B-18
<PAGE> 69
dates during the period. Average annual total return may also be calculated
without adjusting to deduct the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the "Financial Highlights" table in KVF's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in a Fund's shares on the first day of the period, either adjusting
or not adjusting to deduct the maximum sales charge (in the case of Class A
shares), and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B shares and Class C
shares would be reduced if such charge were included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. A Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. Redemption of Class C shares may be
subject to a 1% contingent deferred sales charge in the first year following the
purchase. Returns and net asset value will fluctuate. Factors affecting each
Fund's performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
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.
B-19
<PAGE> 70
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.
CONTRARIAN FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Capital Gain Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Income Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $15,956 $8,660 $3,842 $28,458 184.6% $30,194 201.9% 309.7%
Five Years 12,885 4,499 1,535 18,919 89.2 20.080 100.8 132.7
One Year 9,848 721 214 10,783 7.8 11,442 14.4 28.8
CLASS B SHARES
Life of Fund(++) $11,088 $1,439 $ 293 $12,520 25.2% $12,820 28.2% 41.8%
CLASS C SHARES
Life of Fund(++) $11,074 $1,439 $ 297 $ NA NA $12,810 28.1% 41.8%
<CAPTION>
Lipper
Growth
Standard Consumer Russell and U.S.
TOTAL & Poor's Price 1,000(R) Income Treasury
RETURN 500 Index Value Fund Bill
TABLE (4) (5) (6) (7) (8)
------ -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 257.6% 36.1% 254.8% 223.3% 63.1%
Five Years 102.7 15.0 121.7 98.1 24.9
One Year 22.9 3.3 21.6 20.7 5.2
CLASS B SHARES
Life of Fund(++) 33.5% 3.7% 34.4% 30.0% 7.9%
CLASS C SHARES
Life of Fund(++) 33.5% 3.7% 34.4% 30.0% 7.9%
</TABLE>
<TABLE>
<CAPTION>
Lipper
Growth
AVERAGE Dow Jones Standard Consumer Russell and U.S.
ANNUAL Fund Fund Fund Industrial & Poor's Price 1000(R) Income Treasury
TOTAL RETURN Class A Class B Class C Average 500 Index Value Fund Bill
TABLE Shares Shares Shares (3) (4) (5) (6) (7) (8)
------------ ------- ------- ------- ---------- -------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.6% N/A N/A 17.4% 15.6% 3.6% 15.6% 14.3 5.7
Life of Fund(++) N/A 18.7 20.8 30.6 24.6 2.8 24.8 22.2 6.0
Five Years 13.6 N/A N/A 18.4 15.2 2.8 17.3 14.7 4.5
One Year 7.9 10.6 13.5 28.8 22.9 3.3 21.6 20.7 5.2
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the Russell 1,000(R) Value which is since
March 31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 1,000(R) Value which is since August 31, 1995.
N/A - Not Available.
B-20
<PAGE> 71
HIGH RETURN EQUITY FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 24,995 8,816 7,887 41,698 317.0 44,242 342.4 309.7
Five Years 19,955 1,116 2,032 23,103 131.0 24,505 145.1 132.7
One Year 11,632 125 382 12,139 21.4 12,879 28.8 28.8
CLASS B SHARES
Life of Fund(++) 13,594 412 401 14,107 41.1 14,407 44.1 41.8
CLASS C SHARES
Life of Fund(++) 13,599 412 408 N/A N/A 14,419 44.2 41.8
<CAPTION>
Lipper
Standard Consumer S&P/ Equity
TOTAL & Poor's Price Barra's Income
RETURN 500 Index Value Fund
TABLE (4) (5) (9) (12)
------ -------- -------- ------- ------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 257.6 36.1 249.4 206.5
Five Years 102.7 15.0 117.7 91.2
One Year 22.9 3.3 22.0 17.9
CLASS B SHARES
Life of Fund(++) 33.5 3.7 34.4 28.0
CLASS C SHARES
Life of Fund(++) 33.5 3.7 34.4 28.0
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Standard Consumer S&P/ Lipper
ANNUAL Fund Fund Fund Dow Jones & Poor's Price Barra's Equity
TOTAL RETURN Class A Class B Class C Industrial 500 Index Value Income
TABLE Shares Shares Shares Average(3) (4) (5) (9) Fund(12)
------------ ------- ------- ------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 17.6 N/A N/A 17.4 15.6 3.6 15.4 13.6
Life of Fund(++) N/A 30.0 32.2 30.6 24.6 2.8 24.8 20.7
Five Years 18.2 N/A N/A 18.4 15.2 2.8 16.8 13.8
One Year 21.4 24.6 27.7 28.8 22.9 3.3 22.0 17.9
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the S&P/Barra's Value which is since March
31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
S&P/Barra's Value which is since August 31, 1995.
N/A - Not Available.
SMALL CAP VALUE FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 17,228 2,759 1,557 21,544 115.4 22,859 128.6 116.1
One Year 11,886 68 265 12,219 22.2 12,960 29.6 28.8
CLASS B SHARES
Life of Fund(++) 11,518 211 802 12,231 22.3 12,531 25.3 41.8
CLASS C SHARES
Life of Fund(++) 11,537 212 805 N/A N/A 12,554 25.5 41.8
<CAPTION>
Lipper Small
Standard Consumer Russell Company
TOTAL & Poor's Price 2000(R) Growth
RETURN 500 Index Value Fund
TABLE (4) (5) (10) (11)
------ -------- -------- ------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 102.8 13.5 96.8 108.7
One Year 22.9 3.3 16.5 19.9
CLASS B SHARES
Life of Fund(++) 33.5 3.7 21.1 24.1
CLASS C SHARES
Life of Fund(++) 33.5 3.7 21.1 24.1
</TABLE>
<TABLE>
<CAPTION>
Lipper
AVERAGE Small
ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Company
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 2000(R) Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Value(10) Fund(11)
------------ ------- ------- ------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 18.1 N/A N/A 18.2 16.6 2.8 15.8 17.1
Life of Fund(++) N/A 16.6 19.0 30.6 24.6 2.8 15.8 17.5
One Year 22.2 25.5 28.8 28.8 22.9 3.3 16.5 19.9
</TABLE>
- ---------------
(+) Since May 22, 1992, except for the Lipper Small Company Growth Fund which
is since May 31, 1992.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Lipper Small Company Growth Fund which is since August 31, 1995.
N/A - Not Available.
B-21
<PAGE> 72
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B and Class C
shares for the contingent deferred sales charge that may be imposed at the
end of the period based upon the schedule for shares sold currently; see
"Redemption or Repurchase of Shares" in the prospectus.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Value Index is an unmanaged index comprised of common
stocks of larger U.S. companies with less than average growth orientation.
Companies in this index generally have low price to book and price-earnings
ratios, higher dividend yields and lower forecasted growth values. Assumes
reinvestment of dividends. Source is Lipper Analytical Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of the 30 largest growth and income mutual funds tracked
by Lipper Analytical Services, Inc. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Standard & Poor's/Barra Value Index is constructed by dividing the
stocks in the S&P 500 Index according to a single attribute: book-to-price
ratio. The Value Index contains firms with higher book-to-price ratios and
is capitalization weighted. Source is Lipper Analytical Services, Inc.
(10) The Russell 2000(R) Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index (small companies) with a less than
average growth orientation. Companies in this index generally have low
price to book and price-earnings ratios. Source is Towers Data Systems.
(11) The Lipper Small Company Growth Fund Index is a net asset value weighted
index of the 30 largest small company growth funds. Performance is based on
changes in net asset value with all dividends reinvested and with no
adjustment for sales charges. Source is Lipper Analytical Services, Inc.
(12) The Lipper Equity Income Fund Index is a net asset value weighted index of
the 30 largest equity income funds. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
The following tables illustrate an assumed $10,000 investment in Class A
shares of each Fund, which includes the current maximum sales charge of
5.75%, with income and capital gain dividends reinvested in additional
shares. Each table covers the period from commencement of operations of the
Fund to December 31, 1996.
CONTRARIAN FUND (3/18/88)
<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>
1988 $132 $ 0 $ 9,925 $ 137 $ 0 $10,062
1989 285 785 10,668 429 806 11,903
1990 277 303 9,512 649 1,019 11,180
1991 307 126 11,645 1,119 1,381 14,145
1992 303 0 12,700 1,542 1,505 15,747
1993 267 1,001 12,812 1,827 2,537 17,176
1994 360 1,483 11,458 1,965 3,748 17,171
1995 473 1,385 15,240 3,130 6,454 24,824
1996 557 1,878 15,956 3,842 8,660 28,458
</TABLE>
B-22
<PAGE> 73
HIGH RETURN EQUITY FUND (3/18/88)
<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>
1988 $247 $ 0 $10,376 $ 258 $ 0 $10,634
1989 468 2,331 9,539 687 2,370 12,596
1990 524 0 8,326 1,115 2,069 11,510
1991 387 265 11,786 1,990 3,208 16,984
1992 370 123 13,753 2,722 3,872 20,347
1993 298 345 14,581 3,189 4,453 22,223
1994 352 0 14,214 3,449 4,341 22,004
1995 351 589 20,216 5,317 6,782 32,315
1996 1,261 426 24,995 7,887 8,816 41,698
</TABLE>
SMALL CAP VALUE FUND (5/22/92)
<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>
1992 $ 28 $405 $10,857 $ 29 $ 411 $11,297
1993 58 507 10,584 86 914 11,584
1994 0 416 10,226 83 1,292 11,601
1995 724 326 13,666 864 2,093 16,623
1996 454 118 17,228 1,557 2,759 21,544
</TABLE>
* Includes short-term capital gain dividends.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. 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.
B-23
<PAGE> 74
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 compare the performance of the Class A shares of the
Contrarian, High Return Equity and Small Cap Value Funds over various periods
ended December 31, 1996 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.
<TABLE>
<CAPTION>
GROWTH & INCOME
FUNDS
CONTRARIAN FUND ---------------
<S> <C>
Five Years................................................ 70 of 209
One Year.................................................. 480 of 512
</TABLE>
The Lipper Growth & Income Funds category includes funds that combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
<TABLE>
<CAPTION>
EQUITY INCOME
FUNDS
HIGH RETURN EQUITY FUND -------------
<S> <C>
Five Years................................................ 1 of 57
One Year.................................................. 2 of 159
</TABLE>
The Lipper Equity Income Funds category includes funds that seek relatively high
current income and growth of income through investing 60% or more of its
portfolio in equities.
<TABLE>
<CAPTION>
SMALL COMPANY
GROWTH FUNDS
SMALL CAP VALUE FUND -------------
<S> <C>
One Year.................................................. 50 of 370
</TABLE>
The Lipper Small Company Growth Fund category includes funds that by prospectus
or portfolio practice limit investments to companies on the basis of the size of
the company.
OFFICERS AND DIRECTORS
The officers and directors of KVF, their birthdates, their principal occupations
and their affiliations, if any, with Zurich Kemper Value Advisors, Inc.
("ZKVA"), Zurich Kemper Investments, Inc. ("ZKI"), Zurich Investment Management
Limited ("ZIML") and Zurich Kemper Distributors, Inc. ("ZKDI"), or their
affiliates are as follows (The number following each person's title is the
number of investment companies managed by ZKVA or ZKI for which he or she holds
similar positions):
JAMES E. AKINS (10/15/26), Director (13), 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Director (13), 10642 Brookridge Drive,
Frankfort, Illinois; Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; Member,
B-24
<PAGE> 75
Board of Governors, Heartland Institute/Illinois; formerly, Illinois State
Senator; formerly, Vice President, the Ruben H. Donnelley Corp.
FREDERICK T. KELSEY (4/25/27), Director (13), 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.
*DOMINIQUE P. MORAX (10/2/48), Director (39), 222 South Riverside Plaza,
Chicago, Illinois; Chief Executive Officer and Chief Investment Officer, ZIML;
Director, ZKI.
FRED B. RENWICK (2/1/30), Director (13), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; previously member of the Investment
Committee of Atlanta University Board of Trustees; previously Director of Board
of Pensions Evangelical Lutheran Church in America.
*STEPHEN B. TIMBERS (8/8/44), President and Director (39), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, ZKDI, ZKVA and LTV Corporation.
JOHN B. TINGLEFF (5/4/35), Director (13), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33), Director (13), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering.
*CHRISTIAN C. BERTELSEN (1/20/43), Vice President (1), 280 Park Avenue, 40th
Floor, New York, New York; Senior Managing Director and Chief Investment
Officer, ZKVA.
*CHARLES R. MANZONI, Jr. (1/23/47), Vice President (39), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI, Secretary of ZKI Holding Corp., Secretary ZKI Agency, Inc.;
formerly Partner, Gardner Carton & Douglas (attorneys).
*JOHN E. NEAL (3/9/50), Vice President (39), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, ZKVA and
ZKDI.
*JAMES R. NEEL (4/1/43), Vice President (1), 280 Park Avenue, 40th Floor, New
York, New York; President, Chief Executive Officer and Director, ZKVA.
*STEVEN T. STOKES (7/18/62), Vice President (2), 280 Park Avenue, 40th Floor,
New York, New York; Managing Director, ZKVA.
*JEROME L. DUFFY (6/29/36), Treasurer (39), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
*PHILIP J. COLLORA (11/15/45), Vice President and Secretary (39), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
*ELIZABETH C. WERTH (10/1/47), Assistant Secretary (32), 222 South Riverside
Plaza, Chicago, Illinois; Vice President, ZKI; Vice President and Director of
State Registrations, ZKDI.
- ---------------
* "Interested persons" as defined in the Investment Company Act of 1940.
The directors and officers who are "interested persons" as designated above
receive no compensation from KVF. The table below shows amounts paid or accrued
to those directors who are not designated "interested persons" during the 1996
calendar year.
B-25
<PAGE> 76
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM KEMPER FUND
COMPENSATION COMPLEX PAID TO
NAME OF BOARD MEMBERS FROM KVF BOARD MEMBERS(2)
--------------------- ------------ ----------------
<S> <C> <C>
James E. Akins.............................................. $6,800 $ 94,300
Arthur R. Gottschalk(1)..................................... $6,900 $102,700
Frederick T. Kelsey(1)...................................... $6,800 $106,800
Fred B. Renwick............................................. $6,800 $ 94,300
John B. Tingleff............................................ $6,800 $ 94,300
John G. Weithers............................................ $6,600 $ 94,300
</TABLE>
- ---------------
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds - Zurich
Money Market Fund. The total deferred amount and interest accrued for the
fiscal year ended December 31, 1996 for KVF is $2,900 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 36
fund portfolios. Each board member currently serves as a board member of 13
Kemper Funds with 40 fund portfolios.
As of June 2, 1997, the officers and directors of KVF as a group owned less than
1% of each Fund and ZKVA owned of record all of the outstanding shares of the
Mid Cap Value Fund.
B-26
<PAGE> 77
PRINCIPAL HOLDERS OF SECURITIES
As of June 2, 1997 the following owned of record more than 5% of the outstanding
stock of the Funds, as set forth below.
CONTRARIAN FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
**John G. Nackley & Dennis J. Fiore &....................... A 5.40
Norene Bradshaw Trustees
FBO Intermetro Industries
Salaried Employees Pension Tr.
651 N. Washington St.
Wilkes Barre PA 18705
**NFSC FEBO................................................. B 8.53
NFSC/FMTC
FEBO Marnette M. Johnson
10333 Lake Jackson Drive
Manassas, VA 20111
*Everen Clearing Corp....................................... B 5.62
FBO Jack R. Bowers IRA
4624 State Rt. 160
Highland, IL 62249
*NFSC FEBO.................................................. C 5.33
NFSC/FMTC IRA
FBO John M. Vogel
9620 S. Mansfield
Oak Lawn, IL 60453
**MLPF & S.................................................. C 6.93
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-27
<PAGE> 78
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
**NFSC FEBO................................................. A 7.40
Shirley K. Hori
Takanawa Minato-Ku
Tokyo Japan 108
**Donaldson Lufkin Jenrette................................. A 5.54
Securities Corporation Inc
P.O. Box 2052
Jersey City NJ 07303
**NFSC FEBO................................................. B 9.56
Norman W. Slatton, Sr.
6608 Adamo Dr.
Tampa FL 33619
**Donaldson Lufkin Jenrette................................. C 6.14
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
**Raymond James & Assoc Inc................................. C 6.24
Roy I Frekse IRA
5554 Devonshire Ave
St. Louis MO 63109
**NFSC FEBO................................................. C 6.81
NFSC/FMT IRASEPP
FBO Lori A. Stanley
777 E. West Salem Rd.
Creston OH 44217
**MLPF & S.................................................. C 15.30
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-28
<PAGE> 79
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
NFSC FEBO................................................... A 5.94
FBO Kam Woon Mak IRA
Caineway Mansion
Central Hong Kong
Donald Lufkin Jenrette...................................... A 7.76
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
MLPF&S...................................................... A 28.29
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville, FL 32246
**Everen Clearing Corp...................................... B 5.40
FBO Scott D Smith IRA
305 Hopinton Culver NE
Hopinton IA 52237
NFSC FEBO................................................... B 9.61
Norman W. Slatton Sr.
6608 Adamo Dr.
Tampa FL 33619
MLPF & F.................................................... B 7.30
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
**Donaldson Lufkin Jenrette................................. C 8.02
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
**NFSC FEBO................................................. C 7.22
Beven D. Sangi
6380 Chartes Dr.
Rancho Pls Vrd CA 90275
**MLPS & S.................................................. C 19.90
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
- ---------------
* Record and beneficial owner.
** Record owner only.
B-29
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Kemper Value Fund, Inc.
Kemper Mid Cap Value Fund
We have audited the accompanying statement of net assets of Kemper Value Fund,
Inc. -- Kemper Mid Cap Value Fund as of , 1997. This statement of net
assets is the responsibility of Kemper Value Fund, Inc.'s management. Our
responsibility is to express an opinion on this statement of net assets based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper Value Fund, Inc. --
Kemper Mid Cap Value Fund at , 1997 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
, 1997
B-30
<PAGE> 81
KEMPER VALUE FUND, INC.--
KEMPER MID CAP VALUE FUND
STATEMENT OF NET ASSETS-- , 1997
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $100,000
========
NET ASSETS
Net assets, applicable to shares of common stock ($.01 par
value per share) outstanding as follows:
Class A--3,473.684
Class B--3,473.684
Class C--3,578.947........................................ $100,000
========
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($33,000 / 3,473.684 shares outstanding).......... $ 9.50
Class B* ($33,000 / 3,473.684 shares outstanding)......... $ 9.50
Class C ($34,000 / 3,578.947 shares outstanding).......... $ 9.50
Maximum offering price per share
Class A (net asset value, plus 6.10% of net asset value or
5.75% of
offering price)........................................ $ 10.08
Class B (net asset value)................................. $ 9.50
Class C (net asset value)................................. $ 9.50
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
Kemper Value Fund, Inc. ("KVF") was organized as a Maryland corporation in
October, 1987. All shares of common stock of Kemper Mid Cap Value Fund were
issued to Zurich Kemper Value Advisers, Inc. ("ZKVA"), the investment manager
for the Mid Cap Value Fund, on , 1997 for $100,000 cash. KVF may establish
multiple series; currently four series have been established.
The costs of organization of the Mid Cap Value Fund will be paid by ZKVA.
B-31
<PAGE> 82
APPENDIX--RATINGS OF FIXED INCOME INVESTMENTS
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well
B-32
<PAGE> 83
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-33
<PAGE> 84
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C>
(a) Financial Statements:
(1) Included in Part A of the Registration Statement:
Kemper Contrarian Fund, Kemper-Dreman High Return Equity
Fund and Kemper Small Cap Value Fund--Financial Highlights
Kemper Mid Cap Value Fund--None
(2) Report of Independent Accountants and Financial Statements
included in Part B of the Registration Statement:
Kemper Contrarian Fund, Kemper-Dreman High Return Equity
Fund and Kemper Small Cap Value Fund
Report of Independent Auditors (February 18, 1997)
Statement of Assets and Liabilities--December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for each of the two years
in the period ended December 31, 1996
Notes to Financial Statements
Portfolio of Investments--December 31, 1996
</TABLE>
Schedule I has been omitted as the required information is presented in the
Portfolio of Investments at December 31, 1996.
Schedules II, III, IV and V have been omitted as the required information
is not present.
<TABLE>
<S> <C> <C>
Kemper Mid Cap Value Fund
Report of Independent Auditors-- , 1997
Statement of Net Assets-- , 1997
</TABLE>
Schedules I, II, III, IV and V have been omitted as the required
information is not present.
<TABLE>
<S> <C> <C>
(b) Exhibits:
99.B1a Articles of Incorporation of Registrant*
99.B1b Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1c Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1d Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1e Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1f Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1g Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1h Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1i Articles of Amendment to Articles of Incorporation of
Registrant+
99.B2 Bylaws*
99.B3 Inapplicable
99.B4 Text of Stock Certificate*
99.B5(a) Investment Management Agreement*
99.B5(b) Notification of Additional Fund+
99.B5(c) Sub-Advisory Agreement (DVM)+
99.B5(d) Sub-Advisory Agreement (ZIML)+
99.B6a Underwriting and Distribution Services Agreement*
99.B6b Form of Selling Group Agreement*
99.B7 Inapplicable
</TABLE>
C-1
<PAGE> 85
99.B8 Custody Agreement*
99.B9a Agency Agreement*
99.B9b Supplement to Agency Agreement+
99.B9b Administrative Services Agreement+
99.B10 Opinion and Consent of Vedder, Price, Kaufman & Kammholz+
99.B11 Consent and Reports of Ernst & Young LLP
99.B12 Inapplicable
99.B13 Subscription Agreement+
99.B14 Model Retirement Plans: IRA and SEP-IRA*
99.B15 See 6(a) above (Class B and C Shares)
99.B16 Performance Calculations*
99.B18. Multi-Distribution System Plan+
99.B24. Powers of Attorney*
- ---------------
+ To be filed by amendment.
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
----------- ---------------------------- -----------
<S> <C> <C>
B1(h), B6(b) 17 4/22/97
B5(a), B6(a), B14, B24 16 4/26/96
B1(a), (b), (c), (d), (e), (f), (g) 15 2/29/96
B2, B4, B6b, B8, B9a, B16 14 9/8/95
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
AS OF JUNE 2, 1997
-----------------------------------------
FUND CLASS A CLASS B CLASS C CLASS I
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Kemper Contrarian Fund 7,198 5,993 839 --
Kemper-Dreman High Return Equity Fund 63,759 70,536 9,871 5,023
Kemper Small Cap Value Fund 35,143 33,447 5,510 3,894
Kemper Mid Cap Value Fund -- -- -- --
</TABLE>
ITEM 27. INDEMNIFICATION
The Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. The
Registrant's Bylaws provide for the indemnification of Registrant's officers and
directors.
In no event will Registrant indemnify any of its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith, gross negligence in
the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his or her office.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
C-2
<PAGE> 86
ITEM 28(A). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Manager and Underwriter" and to
the section of the Statement of Additional Information captioned "Investment
Manager and Underwriter".
Dreman Value Advisors, Inc., 280 Park Avenue, 40th Floor, New York, New
York 10017, performs investment advisory services for Registrant, institutional
advisory clients and certain portfolios of Investors Fund Series. Dreman Value
Advisors, Inc. is also a subadviser for Kemper Value Plus Growth Fund, Kemper
Horizon Fund and certain portfolios of Investors Fund Series.
<PAGE> 87
Item 28(b)(ii) Business and Other Connections of Officers and Directors of
Zurich Investment Management Limited, the Investment Sub-Advisor
JOHNS, GORDON K.
Director, Managing Director, Zurich Investment Management Limited
Director, Thames Heritage Parade Limited
NEAL, JOHN E.
Director, Zurich Investment Management Limited
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, Zurich Kemper Investments, Inc.
Director, President, Zurich Kemper Service Company
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
TIMBERS, STEPHEN B.
Director, Zurich Investment Management Limited
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Dreman Value Advisors, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
Director, ZKI Agency, Inc.
FERRO, DENNIS H.
Director, Managing Director-Equities, Zurich Investment
Management Limited
<PAGE> 88
DUDASIK, PATRICK H.
Director and Treasurer, Zurich Investment Management Limited
Executive Vice President & Chief Financial Officer, Zurich Kemper
Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
THOUIN-LEERKAMP, EDITH A.
Director-European Equities, Zurich Investment Management Limited
Senior Vice President, Zurich Kemper Investments, Inc.
HAAS, RICHARD D.W.
Director, Finance Director, Compliance Officer and Joint
Secretary, Zurich Investment Management Limited
PRIDEAUX, TERENCE C.
Director, Zurich Investment Management Limited
KOMAROMY, LESLIE J.S.
Director, Zurich Investment Management Limited
WALLIS, STEPHEN P.
Director, Zurich Investment Management Limited
MASON, ANDREW
Director-Asian Equities, Zurich Investment Management Limited
SHANKAR, RAVI
Director-Fixed Income Strategy, Zurich Investment Management
Limited
SLENDEBROEK, MARC J.
Associate Director, Zurich Investment Management Limited
GRAHAM, ANDREW
Associate Director, Zurich Investment Management Limited
BOORMAN, JONATHAN J.
Associate Director, Zurich Investment Management Limited
<PAGE> 89
Item 28(b) (iii) Business and Other Connections of Officers and Directors
of Dreman Value Advisors, Inc., the Investment Advisor
DREMAN, DAVID N.
Director, Chairman of the Board, Dreman Value Advisors, Inc.
NEAL, JOHN E.
Director, Dreman Value Advisors, Inc.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Zurich Kemper Service Company
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
<PAGE> 90
TIMBERS, STEPHEN B.
Director, Dreman Value Advisors, Inc.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, President, Kemper International Management, Inc.
Director, ZKI Agency, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
<PAGE> 91
NEEL, JAMES R.
Director, President and Chief Executive Officer, Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
BERTELSEN, CHRISTIAN C.
Senior Managing Director and Chief Investment Officer,
Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
DUDASIK, PATRICK H.
Executive Vice President, Chief Financial Officer and Treasurer, Dreman
Value Advisors, Inc.
Executive Vice President and Chief Financial Officer, Zurich Kemper
Investments, Inc.
Chief Financial Officer and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
COUGHLIN, WILLIAM F.
Managing Director, Dreman Value Advisors, Inc.
<PAGE> 92
SASSI, THOMAS
Senior Managing Director, Dreman Value Advisors, Inc.
SHIPMAN, STEPHEN E.
Managing Director, Dreman Value Advisors, Inc.
STOKES, STEPHEN T.
Managing Director, Dreman Value Advisors, Inc.
EPSTEIN, HARRY
Vice President, Operations, Dreman Value Advisors, Inc.
KAY, JONATHAN S.
Managing Director, Dreman Value Advisors, Inc.
McRAE, SUSAN A.
Vice President, Dreman Value Advisors, Inc.
MORRISSEY, JOSYANE
Vice President, Dreman Value Advisors, Inc.
RIDER, JOSEPH K.
Vice President, Dreman Value Advisors, Inc.
COLLORA, PHILIP J.
Assistant Secretary, Dreman Value Advisors, Inc.
Senior Vice President and Assistant Secretary,
Zurich Kemper Investments, Inc.
Vice President and Secretary, Kemper Funds
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
HECHT, MARC L.
Assistant Secretary, Dreman Value Advisors, Inc.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Zurich Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
MANZONI, JR., CHARLES R.
Secretary, Dreman Value Advisors, Inc.
Executive Vice Pres., Sec'y & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
Secretary, Zurich Kemper Service Company
Secretary, Zurich Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
Secretary, Zurich Investment Management, Inc.
<PAGE> 93
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Zurich Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the Kemper Funds,
Investors Fund Series and Kemper International Bond Fund.
(b) Information on the officers and directors of Zurich Kemper
Distributors, Inc., principal underwriter for the Registrant is set forth
below. The principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President/Director
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Thomas V. Bruns Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Philip D. Hausken Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Charles R. Manzoni, Jr. Secretary Vice President
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
<PAGE> 94
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, at the offices of Registrant's investment manager, Dreman
Value Advisors, Inc., 280 Park Avenue, 40(th) Floor, New York, New York 10017,
at the offices of Registrant's principal underwriter, Zurich Kemper
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's custodian and transfer agent, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105 or at the
offices of the Registrant's shareholder service agent, Zurich Kemper Service
Company, 811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
(a) Inapplicable
(b) Registrant undertakes to file a Post-Effective Amendment containing
financial statements, with respect to Kemper Mid Cap Value Fund, which need not
be certified, within four to six months of the effective date of the
Registration Statement.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of its latest annual report to shareholders, upon
request and without charge.
<PAGE> 95
S I G N A T U R E S
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and
State of Illinois, on the 8th day of September, 1997.
KEMPER-DREMAN FUND, INC.
By /s/ Stephen B. Timbers
---------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on September 8,
1997 on behalf of the following persons in the capacities
indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President (Principal
---------------------------------------- Executive Officer) and
Stephen B. Timbers Director
/s/James E. Akins* Director
----------------------------------------
/s/Arthur R. Gottschalk* Director
----------------------------------------
/s/Frederick T. Kelsey* Director
----------------------------------------
/s/Fred B. Renwick* Director
----------------------------------------
/s/John B. Tingleff* Director
----------------------------------------
/s/John G. Weithers* Director
----------------------------------------
/s/Jerome L. Duffy Treasurer (Principal
---------------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of
attorney filed with Post-Efective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A filed on April 26, 1996.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
99.B1a Articles of Incorporation of Registrant*
99.B1b Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1c Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1d Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1e Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1f Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1g Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1h Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1i Articles of Amendment to Articles of Incorporation of
Registrant+
99.B2 Bylaws*
99.B3 Inapplicable
99.B4 Text of Stock Certificate*
99.B5(a) Investment Management Agreement*
99.B5(b) Notification of Additional Funds+
99.B5(c) Sub-Advisory Agreement (DVM)+
99.B5(d) Sub-Advisory Agreement (ZIML)+
99.B6a Underwriting and Distribution Services Agreement*
99.B6b Form of Selling Group Agreement*
99.B7 Inapplicable
99.B8 Custody Agreement*
99.B9a Agency Agreement*
99.B9b Supplement to Agency Agreement+
99.B9b Administrative Services Agreement+
99.B10 Opinion and Consent of Vedder, Price, Kaufman & Kammholz+
99.B11 Consent and Reports of Ernst & Young LLP
99.B12 Inapplicable
99.B13 Subscription Agreement+
99.B14 Model Retirement Plans: IRA and SEP-IRA*
99.B15 See 6(a) above (Class B and C Shares)
99.B16 Performance Calculations*
99.B18. Multi-Distribution System Plan+
99.B24. Powers of Attorney*
</TABLE>
- ---------------
+ To be filed by amendment.
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
----------- ---------------------------- -----------
<S> <C> <C>
B1(h), B6(b) 17 4/22/97
B5(a), B6(a), B14, B24 16 4/26/96
B1(a), (b), (c), (d), (e), (f), (g) 15 2/29/96
B2, B4, B6b, B8, B9a, B16 14 9/8/95
</TABLE>
