<PAGE> 1
KEMPER VALUE SERIES, INC.
SUPPLEMENT TO PROSPECTUS
DATED APRIL 1, 1998
CLASS I SHARES
Kemper Contrarian Fund (the "Contrarian Fund"), Kemper-Dreman High Return Equity
Fund (the "High Return Equity Fund") and Kemper Small Cap Value Fund (the "Small
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 Scudder Kemper Investments, Inc.
("Scudder Kemper"), and its affiliates; and (b) the following investment
advisory clients of Scudder Kemper and its investment advisory affiliates that
invest at least $1 million in a Fund: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. Class I shares currently are available for purchase
only from Kemper Distributors, Inc., principal underwriter for the Funds. Share
certificates are not available for Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will 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> 2
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
Management Fees............................................. .75% .71% .73%
12b-1 Fees.................................................. None None None
Other Expenses.............................................. .15% .12% .16%
---- ---- ----
Total Operating Expenses.................................... .90% .83% .89%
==== ==== ====
</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 $29 $50 $111
on a $1,000 investment, assuming High Return $9 $26 $46 $103
(1) 5% annual return and Small Cap Value $9 $28 $49 $110
(2) redemption at the end of each
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.
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>
JAN. 1 TO YEAR ENDED NOV. 1 TO
NOV. 30, 1997 DECEMBER 31, 1996 DEC. 31, 1995
------------- ----------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $26.49 21.51 19.90
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .75 .54 .04
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 6.81 5.70 2.03
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 7.56 6.24 2.07
- ---------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .48 .53 .06
- ---------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .06 .73 .40
- ---------------------------------------------------------------------------------------------------------------
Total dividends .54 1.26 .46
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.51 26.49 21.51
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.71% 29.36 10.47
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .83% .88 .47
- ---------------------------------------------------------------------------------------------------------------
Net investment income 2.77% 2.45 1.99
- ---------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .83% .88 .85
- ---------------------------------------------------------------------------------------------------------------
Net investment income 2.77% 2.45 1.61
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
JAN. 1 TO YEAR ENDED NOV. 1
NOV. 30, 1997 DECEMBER 31, 1996 TO DEC. 31, 1995
------------- ----------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $18.40 14.52 14.25
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .25 --
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.55 4.13 1.11
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.68 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 $22.08 18.40 14.52
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 20.00% 30.20 8.03
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .89% .84 .47
- ------------------------------------------------------------------------------------------------------------------
Net investment income .94% 1.34 .28
- ------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .89% .84 .90
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .94% 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. Each
Fund's fiscal year end has been changed from December 31 to November 30.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper and its affiliates and (ii) Class I shares of
any other "Kemper Mutual Fund" listed under "Special Features--Class A
Shares--Combined Purchases" in the prospectus. Conversely, shareholders of
Zurich Money Funds--Zurich Money Market Fund who have purchased shares because
they are participants in tax-exempt retirement plans of Scudder Kemper and its
affiliates may exchange their shares for Class I shares of "Kemper Mutual Funds"
to the extent that they are available through their plan. Exchanges will be made
at the relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
April 1, 1998
DRE-1I (4/98)
3
<PAGE> 4
<TABLE>
<S> <C>
TABLE OF CONTENTS
- ------------------------------------------------
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 5
- ------------------------------------------------
Investments Objectives, Policies and Risk
Factors 10
- ------------------------------------------------
Investment Manager and Underwriter 14
- ------------------------------------------------
Dividends and Taxes 18
- ------------------------------------------------
Net Asset Value 19
- ------------------------------------------------
Purchase of Shares 20
- ------------------------------------------------
Redemption or Repurchase of Shares 20
- ------------------------------------------------
Special Features 20
- ------------------------------------------------
Performance 33
- ------------------------------------------------
Capital Structure 34
- ------------------------------------------------
</TABLE>
This prospectus of the Kemper Value Series, Inc. ("KVS") contains information
about KVS that you should know before investing and should be retained for
future reference. A Statement of Additional Information dated April 1, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available upon request without charge from KVS at the
address or telephone number on this cover or the firm from which this prospectus
was obtained.
KVS'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
SERIES, INC.
PROSPECTUS APRIL 1, 1998
KEMPER VALUE SERIES, INC. (FORMERLY NAMED KEMPER VALUE FUND, INC.)
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of three portfolios managed by Scudder Kemper
Investments, Inc.
KEMPER CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER SMALL 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> 5
KEMPER VALUE SERIES, INC.
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The Kemper Value Series, Inc. ("KVS") is an open-end,
diversified management investment company. KVS's three 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.
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. 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 and Small 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 and Small Cap Value Funds assume the risk that they might be obligated to
acquire the optioned stock at a price above the current market price. See
"Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. KVS provides investors with the option of purchasing
shares in the following ways:
Class A Shares.............Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price. Reduced sales
charges apply to purchases of $50,000 or more. Class
A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within
one year of purchase and a .50% contingent deferred
sales 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
1
<PAGE> 6
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. Scudder Kemper Investments, Inc. ("Scudder
Kemper") serves as investment manager for each Fund. Scudder Kemper is paid a
monthly investment management fee by each Fund based upon average daily net
assets of that Fund at an annual rate ranging from .75% to .62%. Dreman Value
Management, L.L.C. ("DVM") is a sub-adviser for the High Return Equity Fund and
is paid by Scudder Kemper a fee based upon average daily net assets of the Fund
at an annual rate ranging from .24% to .198%. Kemper Distributors, Inc. ("KDI"),
an affiliate of Scudder Kemper, is principal underwriter and administrator for
each Fund. For Class B shares and Class C shares, KDI receives a Rule 12b-1
distribution fee at an annual rate of .75% of average daily net assets. KDI also
receives the amount of any contingent deferred sales charges paid on the
redemption of shares. Administrative services are provided to shareholders under
an administrative services agreement with KDI. KVS 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 KDI pays to various broker-dealer
firms and other service or administrative 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 Fund
normally distributes 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."
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. The table does not include the $9.00 quarterly small
account fee. See "Redemption or Repurchase of Shares."
(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."
2
<PAGE> 7
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS A SHARES
Management Fees............................................. .75% .71% .73%
12b-1 Fees.................................................. None None None
Other Expenses.............................................. .60% .51% .59%
----- ----- -----
Total Operating Expenses.................................... 1.35% 1.22% 1.32%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS B SHARES
Management Fees............................................. .75% .71% .73%
12b-1 Fees(4)............................................... .75% .75% .75%
Other Expenses.............................................. .76% .66% .86%
----- ----- -----
Total Operating Expenses.................................... 2.26% 2.12% 2.34%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS C SHARES
Management Fees............................................. .75% .71% .73%
12b-1 Fees(5)............................................... .75% .75% .75%
Other Expenses.............................................. .97% .64% .76%
----- ----- -----
Total Operating Expenses.................................... 2.47% 2.10% 2.24%
===== ===== =====
</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 KDI 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 $98 $127 $211
following expenses on a High Return Equity Fund $69 $94 $121 $197
$1,000 investment, Small Cap Value Fund $70 $97 $126 $207
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
</TABLE>
3
<PAGE> 8
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 $63 $101 $141 $216
following expenses on a High Return Equity Fund $62 $96 $134 $201
$1,000 investment, Small Cap Value Fund $64 $103 $145 $219
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
You would pay the Contrarian Fund $23 $71 $121 $216
following expenses on High Return Equity Fund $22 $66 $114 $201
the same investment, Small Cap Value Fund $23 $73 $125 $219
assuming no redemption:
</TABLE>
<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 $35 $77 $132 $281
following expenses on a High Return Equity Fund $31 $66 $113 $243
$1,000 investment, Small Cap Value Fund $33 $70 $120 $257
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
You would pay the Contrarian Fund $25 $77 $132 $281
following expenses on High Return Equity Fund $21 $66 $113 $243
the Small Cap Value Fund $23 $70 $120 $257
same investment,
assuming
no redemption
</TABLE>
- ---------------
(6) Assumes conversion to Class A shares six years after purchase. The
contingent deferred sales charge was applied as follows: 1 year (4%), 3
years (3%), 5 years (2%) and 10 years (0%). See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares" for more
information regarding the calculation of the contingent deferred sales
charge.
(7) The contingent deferred sales charge was applied as follows: 1 year (1%), 3
years (0%), 5 years (0%) and 10 years (0%). See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information.
The 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.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The tables below show financial information for the 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 KVS's Registration Statement and is available from KVS. The
financial statements contained in the Funds' 1997 Annual Report to Shareholders
are incorporated herein by reference and may be obtained by writing or calling
KVS. Each Fund's fiscal year end has been changed from December 31 to November
30.
CONTRARIAN FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ------------------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $16.93 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 .23 .26 .28 .22 .25 .28 .25 .29 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 4.25 2.07 5.05 (.28) .96 1.13 2.38 (.94) 1.60 .54
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.48 2.30 5.31 -- 1.18 1.38 2.66 (.69) 1.89 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .20 .22 .24 .28 .22 .26 .28 .26 .29 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain .08 1.35 1.05 1.16 .84 -- .11 .28 .81 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .28 1.57 1.29 1.44 1.06 .26 .39 .54 1.10 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.13 16.93 16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 26.58% 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 1.35% 1.23 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.34
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.47% 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 1.35% 1.25 1.66 1.42 1.54 1.53 1.76 1.52 1.67 2.37
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.47% 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.
5
<PAGE> 10
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------ ---------------------------------
JAN. 1 TO YEAR ENDED SEPTEMBER 11 TO JAN. 1 TO YEAR ENDED
NOV. 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 NOV. 30, 1997 DECEMBER 31, 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period $16.92 16.20 15.26 16.90 16.20
- --------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .08 .11 .07 .06 .11
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain 4.22 2.07 1.85 4.20 2.05
- --------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 4.30 2.18 1.92 4.26 2.16
- --------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .06 .11 .07 .02 .11
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .08 1.35 .91 .08 1.35
- --------------------------------------------------------------------------------------------------------------------------
Total dividends .14 1.46 .98 .10 1.46
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.08 16.92 16.20 21.06 16.90
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.44% 13.61 12.83 25.26 13.51
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.26% 2.11 2.00 2.47 2.12
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .56% .68 .88 .35 .67
- --------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 2.26% 2.34 2.36 2.47 2.80
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .56% .45 .52 .35 (.01)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------
SEPTEMBER 11 TO
DECEMBER 31, 1995
------------------
<S> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period 15.26
- ------------------------------
Income from investment
operations:
Net investment income .08
- ------------------------------
Net realized and unrealized
gain 1.85
- ------------------------------
Total from investment
operations 1.93
- ------------------------------
Less dividends:
Distributions from net
investment income .08
- ------------------------------
Distributions from net
realized gain .91
- ------------------------------
Total dividends .99
- ------------------------------
Net asset value, end of period 16.20
- ------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.85
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 1.95
- ------------------------------
Net investment income .93
- ------------------------------
OTHER RATIOS TO AVERAGE NET AS
(ANNUALIZED)
Expenses 2.31
- ------------------------------
Net investment income (loss) .57
- ------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO -------------------------------------------------------------------- MARCH 18 TO
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of
period (in thousands) $178,115 77,592 25,482 12,983 17,157 14,884 14,292 11,782 9,632 5,889
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 77% 95 30 16 16 28 36 37 45 39
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from January 1 to November 30, 1997 and the year
ended December 31, 1996 were $.0538 and $.0490, respectively.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 11
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1, TO ------------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $26.52 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 .54 .39 .26 .25 .21 .24 .31 .34 .39 .25
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 6.89 5.75 6.76 (.39) 1.13 2.21 3.87 (1.21) 1.41 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.43 6.14 7.02 (.14) 1.34 2.45 4.18 (.87) 1.80 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .37 .38 .24 .25 .21 .24 .30 .35 .43 .22
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .06 .73 .40 -- .25 .12 .20 .07 2.26 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .43 1.11 .64 .25 .46 .36 .50 .42 2.69 .22
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.52 26.52 21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.15% 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 1.22% 1.21 1.25 1.25 1.25 1.25 1.25 1.25 1.25 .57
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.38% 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 1.22% 1.21 1.57 1.39 1.56 1.70 2.31 2.38 2.74 3.36
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.38% 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
------------------------------------------------- ---------------------------------------------
JAN. 1 TO YEAR ENDED SEPT. 11 TO JAN. 1 TO YEAR ENDED SEPT. 11 TO
NOV. 30, 1997 DEC. 31, 1996 DEC. 31, 1995 NOV. 30, 1997 DEC. 31, 1996 DEC. 31, 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period $26.44 21.47 19.45 26.45 21.48 19.45
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .31 .19 .07 .32 .20 .09
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain 6.84 5.72 2.41 6.83 5.72 2.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 7.15 5.91 2.48 7.15 5.92 2.50
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .16 .21 .06 .16 .22 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .06 .73 .40 .06 .73 .40
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .22 .94 .46 .22 .95 .47
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.37 26.44 21.47 33.38 26.45 21.48
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.10% 27.63 12.88 27.10 27.66 12.94
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.12% 2.20 2.00 2.10 2.22 1.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.13 .61 1.50 1.11 .66
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 2.12% 2.31 2.35 2.10 2.33 2.30
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.02 .26 1.50 1.00 .31
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN 1 TO ---------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $2,931,721 737,834 98,196 35,005 28,413 14,425 7,238 3,868 3,992
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5% 10 18 12 14 13 37 204 156
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from January 1 to November 30, 1997 and the year
ended December 31, 1996 were $.0501 and $.0513, respectively.
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 18 TO
DECEMBER 31, 1988
-----------------
<S> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) 2,413
- ---------------------------------------
Portfolio turnover rate (annualized) 107
- ---------------------------------------
Average commission rates paid per share
ended December 31, 1996 were $.0501 an
- ---------------------------------------
</TABLE>
7
<PAGE> 12
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ----------------------------------------------------------
NOV. 30, 1997 1996(B) 1995 1994 1993 1992(A)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $18.28 14.50 10.85 11.23 11.52 10.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .05 .14 (.02) -- .06 .03
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.50 4.14 4.64 .02 .23 1.95
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.55 4.28 4.62 .02 .29 1.98
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income -- .07 -- -- .06 .03
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- .43 .97 .40 .52 .43
- -------------------------------------------------------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58 .46
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.83 18.28 14.50 10.85 11.23 11.52
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NET ANNUALIZED) 19.42% 29.60 43.29 .15 2.54 32.51*
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.32% 1.31 1.25 1.25 1.25 1.25
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .51% .87 (.16) (.03) .53 .81
- -------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.32% 1.47 1.83 1.82 2.09 4.29
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .51% .71 (.74) (.61) (.32) (2.24)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------- ---------------------------------
JAN. 1 TO YEAR ENDED SEPT. 11 TO JAN. 1 TO YEAR ENDED
NOV. 30, 1997 DEC. 31, 1996(B) DEC. 31, 1995 NOV. 30, 1997 DEC. 31, 1996(B)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period $18.14 14.48 15.75 18.17 14.48
- ---------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (.04) .01 (.02) (.03) .01
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 3.36 4.11 (.41) 3.37 4.14
- ---------------------------------------------------------------------------------------------------------------------
Total from investment
operations 3.32 4.12 (.43) 3.34 4.15
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .03 -- -- .03
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain -- .43 .84 -- .43
- ---------------------------------------------------------------------------------------------------------------------
Total dividends -- .46 .84 -- .46
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $21.46 18.14 14.48 21.51 18.17
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.30% 28.54 (2.52) 18.38 28.77
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.34% 2.12 2.00 2.24 2.06
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.51)% .06 (.99) (.41) .12
- ---------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 2.34% 2.49 2.39 2.24 2.19
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (.51)% (.31) (1.38) (.41) (.01)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------
SEPT. 11 TO
DEC. 31, 1995
----------------
<S> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period 15.75
- -----------------------------
Income from investment
operations:
Net investment income (loss) (.02)
- -----------------------------
Net realized and unrealized
gain (loss) (.41)
- -----------------------------
Total from investment
operations (.43)
- -----------------------------
Less dividends:
Distribution from net
investment income --
- -----------------------------
Distributions from net
realized gain .84
- -----------------------------
Total dividends .84
- -----------------------------
Net asset value, end of
period 14.48
- -----------------------------
TOTAL RETURN (NOT ANNUALIZED) (2.51)
- -----------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 1.95
- -----------------------------
Net investment income (loss) (.94)
- -----------------------------
OTHER RATIOS TO AVERAGE NET A
(ANNUALIZED)
Expenses 2.35
- -----------------------------
Net investment loss (1.34)
- -----------------------------
</TABLE>
(b) Per share data for 1996 were determined based on average shares outstanding.
8
<PAGE> 13
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ------------------------------------------- MAY 22 TO
NOV. 30, 1997 1996 1995 1994 1993 DECEMBER 31, 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $1,263,144 273,222 31,606 6,931 4,875 2,385
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 83% 23 86 140 79 37
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended
December 31, 1996 were $.0547 and $.0426, respectively.
- --------------------------------------------------------------------------------
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.
9
<PAGE> 14
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 the
investment manager, 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. The investment manager considers a market sector to be comprised of a
group of industries. If the Fund invests a significant percentage of its assets
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 invested a significant percentage of 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 that the
10
<PAGE> 15
investment manager believes to be undervalued. Under normal market conditions,
at least 65% of the total assets of the Fund will be invested in securities of
companies that are similar in size to those in the Russell 2000 Index. The Fund
will sell securities of companies that have grown in market capitalization above
the maximum of the Russell 2000 Index, as necessary to keep the Fund focused on
smaller companies. The Russell 2000 Index is comprised of 2,000 of the smallest
stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest
capitalized, U.S. domiciled companies.
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.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates of each Fund are
listed under "Financial Highlights." 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 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. Most investments will be
in securities of domestic companies, but, the Funds may also invest up to 20% of
their assets in securities of foreign companies through the acquisition of
sponsored American Depository Receipts ("ADRS"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of underlying securities issued
by a foreign issuer. ADRs may be listed on a national securities exchange or may
be traded in
11
<PAGE> 16
the over-the-counter market. While it is anticipated that under normal
circumstances all Funds will be fully invested, in order to conserve assets
during temporary defensive periods when the investment manager deems it
appropriate, each Fund may invest up to 50% of its assets in cash or
defensive-type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements. Investments in such interest bearing securities
will be for temporary defensive purposes only.
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 Funds will not
invest more than 10% 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.
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.
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.
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. A Fund will not
enter into any futures contracts or options
12
<PAGE> 17
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 the 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 AND OTHER DERIVATIVES. The Statement of
Additional Information contains further information about the characteristics,
risks and possible benefits of options, futures 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, futures and other
derivatives contracts and movements in the prices of the securities 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 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; and (e) the possible non-performance of the
counter-party to the derivative contract.
13
<PAGE> 18
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 is authorized to borrow from banks in amounts not in
excess of 10% of their respective 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.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index or an interest rate ("derivatives").
Derivatives are most often used in an effort to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). There is no
guarantee that these results can be achieved through the use of derivatives. The
types of derivatives used by each Fund and the techniques employed by the
investment manager may change over time as new derivatives and strategies are
developed or regulatory changes occur.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345
Park Avenue, New York, New York, 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. Scudder Kemper is one of the
largest investment managers in the country with more than $200 billion under
management and has been engaged in the management of investment funds for more
than seventy years. 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, owns approximately 70% of Scudder Kemper, with the balance owned by
Scudder Kemper's officers and employees.
Responsibility for overall management of KVS rests with its Board of Directors
and officers. Professional investment supervision is provided by Scudder Kemper.
The investment management agreement provides that Scudder Kemper shall act as
each Fund's investment adviser, manage its investments and provide it with
various services and facilities.
Thomas Sassi and Jonathan Kay have been co-managers of the Contrarian Fund since
July 1997 and Frederick L. Gaskin has been a co-manager of the Fund since
September 1997. Mr. Sassi is the lead manager of the Fund. He joined Scudder
Kemper in August 1996. He was a consultant with an unaffiliated investment
consulting firm
14
<PAGE> 19
and an officer of an unaffiliated investment banking firm from 1993 to 1996. Mr.
Gaskin joined Scudder Kemper in 1996. From 1993 until 1996, Mr. Gaskin served as
a vice president and portfolio manager for an unaffiliated investment management
firm. He received a B.S. in finance from Appalachian State University and an
M.B.A. from Babcock Graduate School of Management. Mr. Sassi received a B.B.A.
in management and economics and an M.B.A. in Finance from Hofstra University in
New York City, New York. Jonathan Kay joined Scudder Kemper in 1993 where he has
served as a portfolio manager for institutional accounts. He received a B.A. in
economics from the University of Buffalo and an M.B.A. in Finance from Bernard
M. Baruch College in New York City, New York.
David N. Dreman has been the portfolio manager of the High Return Equity Fund
since its inception in 1988. He is the Chairman of DVM, and was associated with
KVS'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 and Steven T. Stokes have been the portfolio co-managers of
the Small Cap Value Fund since July 1997. Mr. Forester has lead responsibility
for the management of the Fund. He joined Scudder Kemper in May 1997. Prior to
joining Scudder Kemper, he served as a senior portfolio manager of an
unaffiliated investment management firm from 1995 to 1997. For the three years
prior to 1995, he was a portfolio manager for another investment management
firm. He received his undergraduate degree at the University of Colorado and an
M.B.A. in finance from Northwestern University. He is a chartered financial
analyst. Mr. Stokes joined Scudder Kemper in April 1996. Prior to joining
Scudder Kemper, he served as a portfolio manager and financial analyst for an
unaffiliated investment management firm from 1986 to 1996. Mr. Stokes received a
B.S. degree in Finance from State University of New York at New Paltz. He is a
chartered financial analyst.
Each Fund pays Scudder Kemper an investment management fee, payable monthly, at
1/12 of 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 Scudder
Kemper is .75%, it is higher than that paid by most other mutual funds.
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
Scudder Kemper 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 Scudder Kemper 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. Scudder Kemper
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, Scudder Kemper has guaranteed to pay a
minimum of $8 million to DVM during each of the calendar years 2000, 2001 and
2002 that DVM serves as sub-adviser.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share of the Funds and maintaining all accounting
15
<PAGE> 20
records related hereto. Currently, SFAC receives no fee for its services to the
Funds; however, subject to Board approval, at some time in the future SFAC may
seek payment for its services to the Funds under its agreement with such Funds.
YEAR 2000 COMPLIANCE. Many computers currently are unable to correctly process
date-related information which spans the 21(st) century. The inability to
successfully address this issue could result in interruptions in a Fund's
business and have a material adverse effect on a Fund's operations. Scudder
Kemper and its affiliates have commenced a review of their computer-based
systems, as well as those of third party service providers, with a view toward
assessing whether or not the transition to the 21(st) century will have any
material impact on the ability of Scudder Kemper to conduct its business. The
process involves identifying the systems affected, monitoring the process of
system upgrades, as appropriate, against planned time lines, and developing
contingency plans in order to meet identified material risks.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with KVS, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a wholly owned
subsidiary of Scudder Kemper, is the principal underwriter and distributor of
each Fund's shares and acts as agent of each Fund in the sale of its shares. KDI
bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI provides for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI bears the cost
of qualifying and maintaining the qualification of the Funds' shares for sale
under the securities laws of the various states and KVS bears the expense of
registering its shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services to investors.
KDI also may provide some of the distribution services.
CLASS A SHARES. KDI receives no compensation from KVS as principal underwriter
for Class A shares and pays all expenses of distribution of KVS's Class A shares
under the distribution agreement not otherwise paid by dealers or other
financial services firms. As indicated under "Purchase of Shares," KDI retains
the sales charge upon the purchase of shares and pays or allows concessions or
discounts to firms for the sale of KVS shares.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares-Contingent
Deferred Sales Charge-Class B Shares." KDI currently compensates firms for sales
of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. KDI currently advances to firms
the first year distribution fee at a rate of .75% of the purchase price of such
shares. For periods after the first year, KDI currently intends to pay firms for
sales of Class C shares a distribution fee, payable quarterly, at an annual rate
of .75% of net assets attributable to Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or KVS. KDI also receives
any contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Charge--Class C Shares."
RULE 12B-1 PLAN. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may,
16
<PAGE> 21
directly or indirectly, bear the expenses of distributing its shares. The table
below shows amounts paid in connection with each Fund's Rule 12b-1 Plan during
the period January 1, 1997 through November 30, 1997.
<TABLE>
<CAPTION>
DISTRIBUTION FEES CONTINGENT DEFERRED
DISTRIBUTION EXPENSES PAID BY FUND SALES CHARGE PAID
INCURRED BY UNDERWRITER TO UNDERWRITER TO UNDERWRITER
-------------------------- ---------------------- --------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian................. $ 1,552,000 104,000 353,000 29,000 62,000 2,000
High Return Equity......... $43,649,000 3,515,000 5,477,000 901,000 817,000 31,000
Small Cap Value............ $14,136,000 1,560,000 1,716,000 392,000 221,000 22,000
</TABLE>
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of KVS to make payments to KDI pursuant to the Plan will cease
and KVS will not be required to make any payments past the termination date.
Thus, there is no legal obligation for KVS to pay any expenses incurred by KDI
in excess of its fees under the Plan, if for any reason the Plan is terminated
in accordance with its terms. Future fees under the Plan may or may not be
sufficient to reimburse KDI for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of KVS pursuant to an administrative services
agreement ("administrative agreement"). KDI may enter into related arrangements
with various broker-dealer firms and other service or administrative firms
("firms") that provide services and facilities for their customers or clients
who are investors in KVS. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining accounts and
records, processing purchase and redemption transactions, answering routine
inquiries regarding each Fund and its special features, and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreement, KVS pays KDI a
fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of Class A, B and C shares of each Fund. KDI then pays each firm a
service fee, normally payable quarterly, at an annual rate of up to .25% of net
assets of each class of those accounts that it maintains and services for KVS.
Firms to which service fees may be paid include affiliates of KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the accounts in the month following the month of purchase
and the fee continues until terminated by KDI or KVS. The fees are calculated
monthly and normally paid quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and normally paid quarterly) of the
net assets attributable to Class B and Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or KVS.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for KVS. Currently, the
administrative services fee payable to KDI is based only upon KVS assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from KVS
to firms in the form of service fees. The effective administrative services fee
rate to be charged against all assets of KVS while this procedure is in effect
will depend upon the proportion of Fund assets that is in accounts for which a
firm provides administrative services as well as, with respect to Class A
shares, the date when shares representing such assets were purchased. In
addition, KDI may, from time to time, from its own resources pay certain firms
additional amounts for ongoing administrative services and assistance provided
to their customers and clients who are shareholders of each Fund.
17
<PAGE> 22
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of KVS maintained in the United States. IFTC also is KVS's transfer agent and
dividend-paying agent. Pursuant to a services agreement with IFTC, Kemper
Service Company ("KSVC"), an affiliate of Scudder Kemper, serves as "Shareholder
Service Agent" of KVS 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. Scudder Kemper places all orders for purchases and sales
of a Fund's securities (except that DVM places all orders for the High Return
Equity Fund). As described more fully under "Portfolio Transactions" in the
Statement of Additional Information, they may consider sales of shares of a Fund
and of funds managed by Scudder Kemper or its affiliates as a factor in
selecting broker-dealers.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, the Small Cap Value Fund normally
distributes 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.
TAXES. Each Fund intends 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 20% on gains
realized by a Fund from securities held more than 18 months and at a maximum
rate of 28% on
18
<PAGE> 23
gains realized by a Fund from securities held more than 12 months but not more
than 18 months. 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. 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 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. Other securities and assets are valued at fair value as
determined in good faith by the Board of Directors. 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
19
<PAGE> 24
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 A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
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).
20
<PAGE> 25
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 KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which Scudder Kemper or an affiliate does not serve as
investment manager ("non-Kemper fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized. KDI may in its
discretion compensate firms for sales of Class A shares under this privilege at
a commission rate of .50% of the amount of Class A shares purchased.
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."
21
<PAGE> 26
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale under the foregoing schedules, KDI will
consider the cumulative amount invested by the purchaser in a Fund and other
Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege also applies.
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER
SHORT-TERM GLOBAL INCOME FUND, ET. AL., Case No. 93 C 5231 (N.D.IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, KDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to .25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of 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 KVS, its
investment manager, its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with KDI; (c)
officers, directors, and employees of service agents of KVS; (d) shareholders
who owned shares of KVS on September 8, 1995, and have continuously owned shares
of KVS (or a Kemper Fund acquired by exchange of KVS shares) since that date,
for themselves or members of their families; and (e) any trust, pension,
profit-sharing or other benefit plan for only such persons. Class A shares may
be sold at net asset value in any amount to selected employees (including their
spouses and dependent children) of banks and other financial services firms that
provide administrative services related to order placement and payment to
facilitate transactions in shares of KVS for their clients pursuant to an
agreement with KDI or one of its affiliates. Only those employees of such banks
and other firms who as part of their usual duties provide services related to
transactions in Fund shares may purchase a Fund's Class A shares at net asset
value hereunder. Class A shares may be sold at net asset value in any amount to
unit investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the Investment Advisers Act of 1940
and other financial services firms that adhere to certain standards established
by KDI, including a requirement that such shares be sold for the benefit of
their clients participating in an investment
22
<PAGE> 27
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 KVS. KVS may also issue Class A shares at
net asset value in connection with the acquisition of the assets of or merger or
consolidation with another investment company, or to shareholders in connection
with the investment or reinvestment of income and capital gain dividends.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by KVS 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
KDI to have been compensated for distribution related expenses. For purposes of
conversion to Class A shares, shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares in a
shareholder's KVS account will be converted to Class A shares on a pro rata
basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon redemption
of Class C shares within one year of purchase. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares." KDI currently
advances to firms the first year distribution fee at a rate of .75% of the
purchase price of such
23
<PAGE> 28
shares. For periods after the first year, KDI currently intends to pay firms for
sales of Class C shares a distribution fee, payable quarterly, at an annual rate
of .75% of net assets attributable to Class C shares maintained and serviced by
the firm. KDI is compensated by KVS 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 KVS 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 KVS for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
KVS.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over' of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSVC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KDI in acknowledgment of their
dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of KVS. 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 KVS, or other funds
underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must
24
<PAGE> 29
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 KVS'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
KVS's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, KVS'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 KVS through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from KVS through the Shareholder Service Agent for these
services. This prospectus should be read in connection with such firms' material
regarding their fees and services.
KVS 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, KVS may
temporarily suspend the offering of shares of any Fund or class of a Fund to new
investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such Fund or class and to have dividends
reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require KVS to redeem his or her shares. When
shares are held for the account of a shareholder by KVS's transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of 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 KVS is asked to redeem shares for which it may not have yet received good
payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct Deposit), it
may delay transmittal of redemption proceeds until it has determined that
collected funds have been received for the purchase of such shares, which may be
up to 10 days from receipt by KVS of the purchase amount. The
25
<PAGE> 30
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, KVS 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. KVS 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 KVS 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 use the telephone redemption privilege, although investors
can still redeem by mail. KVS reserves the right to terminate or modify this
privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which KVS has authorized to act as its agent. There is no
charge by KDI with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable Fund next determined after receipt
of a request by KDI. However, requests for repurchases received by dealers or
other firms prior to the
26
<PAGE> 31
determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by KVS for up to seven days if
Scudder Kemper deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. KVS is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. KVS 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 KVS 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. KVS 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 KVS's Systematic Withdrawal Plan at a maximum of 10% per year
of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
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
27
<PAGE> 32
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 KVS'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.
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
28
<PAGE> 33
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, 1998 will be eligible for the 3% charge if redeemed on
or after May 1, 1999. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or a
Kemper Mutual Fund who redeems Class A shares purchased under the Large Order
NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in Class A, Class B or Class C
shares, as the case may be, of a Fund or of other Kemper Mutual Funds. The
amount of any contingent deferred sales charge also will be reinvested. These
reinvested shares will retain their original cost and purchase date for purposes
of the contingent deferred sales charge. Also, a holder of Class B shares who
has redeemed shares may reinvest up to the full amount redeemed, less any
applicable contingent deferred sales charge that may have been imposed upon the
redemption of such shares, at net asset value in Class A shares of a Fund or of
the Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of a Fund, the reinvestment in the same
Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund (available only upon
exchange or conversion from Class A shares of another Kemper Mutual Fund),
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper
Value Fund, Inc., Kemper Value Plus Growth Fund, Kemper Quantitative Equity
Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper
Securities Trust and Kemper Equity Trust ("Kemper Mutual Funds"). Except as
noted below, there is no combined
29
<PAGE> 34
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 KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares
30
<PAGE> 35
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 KDI.
Exchanges may be accomplished by a written request to KSVC, Attention: Exchange
Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by telephone
if the shareholder has given authorization. Once the authorization is on file,
the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Kemper Funds that are eligible for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and the portfolios of Investors Municipal Cash Fund are available for
sale only in certain states. Except as otherwise permitted by applicable
regulations, 60 days' prior written notice of any termination or material change
will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Fund, a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
31
<PAGE> 36
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 KVS 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 KVS account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares--General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday, 8:00 a.m. to 3:00 p.m.
Chicago time. Shareholders may terminate this privilege by sending written
notice to KSVC, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
will become effective as soon as the Shareholder Service Agent has had a
reasonable time to act upon the request. EXPRESS-Transfer cannot be used with
passbook savings accounts or for tax-deferred plans such as Individual
Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, 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 KVS account. By enrolling in Bank Direct Deposit, the shareholder
authorizes KVS and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to KSVC, P.O. Box 419415, Kansas City, Missouri 64141-
6415. Termination by a shareholder will become effective within thirty days
after the Shareholder Service Agent has received the request. KVS may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. KVS 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 KVS 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.) KVS 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, KVS will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time
32
<PAGE> 37
making systematic withdrawals. KDI will waive the contingent deferred sales
charge on redemptions of Class A shares purchased under the Large Order NAV
Purchase Privilege, Class B shares and Class C shares made pursuant to a
systematic withdrawal plan. The right is reserved to amend the systematic
withdrawal plan on 30 days' notice. The plan may be terminated at any time by
the investor or KVS.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Traditional, Roth and Education Individual Retirement Accounts ("IRAs") with
IFTC as custodian. This includes Savings Incentive Match Plan for Employees of
Small Employers ("SIMPLE"), 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
KVS 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,
33
<PAGE> 38
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 Financial Data, Inc.'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 KVS.
CAPITAL STRUCTURE
KVS was organized as a Maryland corporation in October, 1987 and has an
authorized capitalization of 3,000,000,000 shares of $.01 par value common
stock. In March, 1998, KVS changed its name from Kemper Value Fund, Inc. to
Kemper Value Series, Inc. In July, 1997, KVS changed its name from Kemper-Dreman
Fund, Inc. to Kemper Value Fund, Inc. In September, 1995, KVS changed its name
from Dreman Mutual Group, Inc. to Kemper-Dreman Fund, Inc. Since KVS may offer
multiple funds, it is known as a "series company." Currently, KVS offers four
classes of shares of each Fund. These are Class A, Class B and Class C shares,
as well as Class I shares, which have different expenses, that may affect
performance, and are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Scudder Kemper and its affiliates;
and (b) the following investment advisory clients of Scudder Kemper and its
investment advisory affiliates that invest at least $1 million in a Fund: (1)
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (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
34
<PAGE> 39
of KVS may, to the extent permitted by applicable law, have the right at any
time to redeem from any shareholder, or from all shareholders, all or any part
of any series or class, or of all series or classes, of the shares of KVS.
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. KVS will call a meeting of
shareholders, if requested to do so by the holders of at least 10% of KVS'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.
35
<PAGE> 40
April 1, 1998
PROSPECTUS
KEMPER EQUITY FUNDS/
VALUE STYLE
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[KEMPER FUNDS LOGO] [KEMPER FUNDS LOGO]
[RECYCLED LOGO] Printed on Recycled Paper DRE-1 (4/98) KDI 801196
<PAGE> 41
KEMPER VALUE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
KEMPER CONTRARIAN FUND ("CONTRARIAN FUND")
KEMPER-DREMAN HIGH RETURN EQUITY FUND ("HIGH RETURN EQUITY FUND")
KEMPER SMALL CAP VALUE FUND ("SMALL 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 Series, Inc. ("KVS"). It should be read in conjunction with the
prospectus of KVS dated April 1, 1998. The prospectus may be obtained without
charge from KVS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions..................................... B-1
Investment Policies and Techniques.......................... B-2
Portfolio Transactions...................................... B-4
Investment Manager and Underwriter.......................... B-7
Purchase and Redemption of Shares........................... B-12
Dividends and Taxes......................................... B-13
Performance................................................. B-14
Officers and Directors...................................... B-20
</TABLE>
The financial statements appearing in KVS's 1997 Annual Report to Shareholders
are incorporated herein by reference. The financial statements for KVS accompany
this document.
DRE-13 (4/98) (LOGO)printed on recycled paper
<PAGE> 42
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) 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) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Purchase or sell commodities or commodity contracts, except futures
contracts and options thereon as stated in the prospectus, or 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.
(8) 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.
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.
B-1
<PAGE> 43
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 spread
options, which are options for which the exercise price may be a fixed dollar
spread or yield spread between the security underlying the option and another
security that is used as a bench mark. The exercise price of an option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
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.
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 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 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
B-2
<PAGE> 44
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of an
index since the prices of such securities may be affected by somewhat different
factors and, therefore, the Fund bears the risk that a loss on an index option
would not be completely offset by movements in the price of such securities.
When a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
A Fund may also deal in options on other appropriate indices as available.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described below.
FINANCIAL FUTURES CONTRACTS. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security
or the cash value of a securities index. This investment technique is designed
primarily to hedge (i.e., protect) against anticipated future changes in market
conditions which otherwise might affect adversely the value of securities or
other assets which the Fund holds or intends to purchase. A "sale" of a futures
contract means the undertaking of a contractual obligation to deliver the
securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. In some cases, securities called for by a futures contract may
not have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. A
Fund will incur brokerage fees when it purchases or sells contracts, and will be
required to maintain margin deposits. At the time a Fund enters into a futures
contract, it is required to deposit with its custodian, on behalf of the broker,
a specified amount of cash or eligible securities, called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Fund's return. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the
B-3
<PAGE> 45
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 and each Fund other than the Contrarian Fund may
write put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. A Fund would
be required to deposit with its custodian initial margin and maintenance margin
with respect to put and call options on futures contracts written by it. A Fund
will establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above.
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 KVS'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. KVS 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.
PORTFOLIO TRANSACTIONS
SCUDDER KEMPER
Allocation of brokerage is supervised by Scudder Kemper Investments, Inc.
("Scudder Kemper").
The primary objective of Scudder Kemper in placing orders for the purchase and
sale of securities for a Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission
B-4
<PAGE> 46
where applicable, size of order, difficulty of execution and skill required of
the executing broker/dealer. Scudder Kemper seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
its familiarity with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
Scudder Kemper reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is Scudder Kemper's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Scudder Kemper is authorized when placing portfolio transactions for a Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction solely on account of the receipt of research,
market or statistical information. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, Scudder Kemper may give consideration to those firms that have sold
or are selling shares of a Fund managed by Scudder Kemper.
To the maximum extent feasible, it is expected that Scudder Kemper will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder
Kemper. SIS will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to Scudder Kemper, it is the opinion
of Scudder Kemper that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by Scudder
Kemper's staff. Such information may be useful to Scudder Kemper in providing
services to clients other than the Funds and not all such information is used by
Scudder Kemper in connection with the Funds. Conversely, such information
provided to Scudder Kemper by broker/dealers through whom other clients of
Scudder Kemper effect securities transactions may be useful to Scudder Kemper in
providing services to a Fund.
The Directors of KVS review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
DVM
Under the sub-advisory agreement between Scudder Kemper and Dreman Value
Management, L.L.C. ("DVM"), DVM places all orders for purchases and sales of the
High Return Equity Fund's securities. At times
B-5
<PAGE> 47
investment decisions may be made to purchase or sell the same investment
securities of the Fund and for one or more of the other clients managed by DVM.
When two or more of such clients are simultaneously engaged in the purchase or
sale of the same security through the same trading facility, the transactions
are allocated as to amount and price in a manner considered equitable to each.
Position limits imposed by national securities exchanges may restrict the number
of options the Fund will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or future contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases. The Board of Directors
believes that the benefits of DVM's organization outweigh any limitations that
may arise from simultaneous transactions or position limitations.
DVM, in effecting purchases and sale of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders.
DVM may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
execution, financial responsibility, responsiveness, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and DVM. Subject to seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients of DVM. In selecting among firms believed to meet
the criteria for handling a particular transaction, DVM may give consideration
to those firms that have sold or are selling shares of the Fund and of other
funds managed by Scudder Kemper and its affiliates, as well as to those firms
that provide market, statistical and other research information to the Fund and
DVM, although DVM is not authorized to pay higher commissions to firms that
provide such services, except as described below.
DVM may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services as defined
in Section 28(e) of the Securities Exchange Act of 1934 and interpretations
thereunder. Such services may include among other things: economic, industry or
company research reports or investment recommendations; computerized databases;
quotation and execution equipment and software; and research or analytical
computer software and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by DVM
in cash. Subject to Section 28(e) and procedures adopted by the Board of
Directors of KVS, 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 Scudder Kemper to DVM is not
reduced because these research services are received.
B-6
<PAGE> 48
BROKERAGE COMMISSIONS
The table below shows total brokerage commissions paid by the Funds for the last
three fiscal periods and for the most recent fiscal period, the percentage
thereof that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN
FUND FISCAL 1997* FISCAL 1997 FISCAL 1996 FISCAL 1995
---- ------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund................................. $ 243,000 59% $157,000 $15,000
High Return Equity Fund......................... $1,432,000 25% $489,000 $40,000
Small Cap Value Fund............................ $1,339,000 74% $365,000 $58,000
</TABLE>
* January 1, 1997 -- November 30, 1997.
The increase in the dollar amount of brokerage commissions paid by the Funds
during the 1997 and 1996 fiscal years was primarily due to the increase in the
amount of assets under management of each Fund.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper, 345 Park Avenue, New York, New York, is the
investment manager of each Fund. Scudder Kemper is approximately 70% owned by
Zurich Insurance Company, a leading internationally recognized provider of
insurance and financial services in property/casualty and life insurance,
reinsurance and structured financial solutions as well as asset management. The
balance of Scudder Kemper is owned by Scudder Kemper's officers and employees.
Pursuant to an investment management agreement, Scudder Kemper acts as the
investment adviser of each Fund, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services, and permits any of its officers or employees to
serve without compensation as directors or officers of KVS if elected to such
positions. The investment management agreement provides that each Fund pays the
charges and expenses of its operations, including the fees and expenses of the
directors (except those who are affiliates of Scudder Kemper or its affiliates),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value and maintaining all
accounting records related thereto, taxes and membership dues. KVS bears the
expenses of registration of its shares with the Securities and Exchange
Commission, while Kemper Distributors, Inc. ("KDI"), as principal underwriter,
pays the cost of qualifying and maintaining the qualification of each Fund's
shares for sale under the securities laws of the various states.
The investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
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 KVS, and (b) by the
shareholders or the Board of Directors of KVS. 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.
Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc.
("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global
investment organization by combining Scudder with Zurich Kemper Investments,
Inc. ("ZKI"), a former subsidiary of Zurich and the parent of the former
investment manager to
B-7
<PAGE> 49
the Funds and Scudder changed its name to Scudder Kemper Investments, Inc. As a
result of the transaction, Zurich owns approximately 70% of Scudder Kemper, with
the balance owned by Scudder Kemper's officers and employees.
Because the transaction between Scudder and Zurich resulted in the assignment of
the Funds' investment management agreements with Zurich Kemper Value Advisors,
Inc. ("ZKVA"), a subsidiary of ZKI, the agreements were deemed to be
automatically terminated upon consummation of the transaction. In anticipation
of the transaction, however, new investment management agreements between the
Funds and Scudder Kemper were approved by the Funds' Board of Directors and
shareholders. The new investment management agreements were effective as of
December 31, 1997 and will be in effect for an initial term ending on the same
date as would the previous investment management agreement with ZKVA.
The Funds' investment management agreements are on substantially similar terms
as the investment management agreements terminated by the transaction, except
that Scudder Kemper is the new investment adviser to the Funds.
The current investment management fee rates paid by the Funds are in the
prospectus under "Investment Manager and Underwriter." From August 24, 1995
through November 30, 1997, the Funds paid the former adviser an investment
management fee at the same annual rate as that currently paid by the Funds.
Prior to August 24, 1995, the Funds paid a second 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 Funds for the last three fiscal
years.
<TABLE>
<CAPTION>
FUND FISCAL 1997* FISCAL 1996 FISCAL 1995
---- ------------ ----------- -----------
<S> <C> <C> <C>
Contrarian Fund............................................. $ 903,000 $ 400,000 $119,000
High Return Equity Fund..................................... $12,084,000 $2,430,000 $369,000
Small Cap Value Fund........................................ $ 5,160,000 $ 943,000 $ 90,000
</TABLE>
- ---------------
*January 1, 1997 -- November 30, 1997.
HIGH RETURN EQUITY FUND SUB-ADVISER. Dreman Value Management, L.L.C. ("DVM"),
Three Harding Road, Red Bank, New Jersey 07701, is the sub-adviser for the High
Return Equity Fund. DVM is controlled by David N. Dreman. DVM serves as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
Scudder Kemper.
Under the terms of the Sub-Advisory Agreement, DVM manages the investment and
reinvestment of the High Return Equity Fund's portfolio and will provide such
investment advice, research and assistance as Scudder Kemper may, from time to
time, reasonably request. The current sub-advisory fee rates paid by Scudder
Kemper 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 KVS, and (b) by the
shareholders or the Board of Directors of the Fund. The Sub-Advisory Agreement
may be terminated at any time upon 60 days' notice by Scudder Kemper or by the
Board of Directors of KVS or by majority vote of the outstanding shares of the
Fund, and will terminate automatically upon assignment or upon termination of
the Fund's
B-8
<PAGE> 50
investment management agreement. DVM may not terminate the Sub-Advisory
Agreement prior to July 30, 2000. Thereafter, DVM may terminate the Sub-Advisory
Agreement upon 90 days' notice to Scudder Kemper.
FUND ACCOUNTING AGENT. SFAC, a subsidiary of Scudder Kemper, is responsible for
determining the daily net asset value per share of the Funds and maintaining all
accounting records related thereto. Currently, SFAC receives no fee for its
services to the Funds; however, subject to Board approval, at some time in the
future, SFAC may seek payment for its services to the Funds under its agreement
with such Funds.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), an
affiliate of Scudder Kemper, and a wholly owned subsidiary of Scudder Kemper, is
the principal underwriter and distributor for the shares KVS and acts as agent
of KVS in the continuous offering of its shares. KDI bears all its expenses of
providing services pursuant to the distribution agreement, including the payment
of any commissions. KVS pays the cost for the prospectus and shareholder reports
to be set in type and printed for existing shareholders, and KDI, as principal
underwriter, pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. KDI also pays
for supplementary sales literature and advertising costs.
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 KVS, including the Directors who are not interested persons of
KVS 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
KDI upon 60 days' notice. Termination by a Fund with respect to a class may be
by vote of a majority of the Board of Directors, or a majority of the Directors
who are not interested persons of KVS and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the class of KVS, 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 KVS's shares, pursuant to an underwriting agreement which
became effective January 4, 1993. Under the agreement, FBS was the exclusive
agent for KVS's continuous offer of shares. Prior to September 11, 1995, shares
of KVS were offered to the public at net asset value, without a sales load. No
underwriting commissions were associated with sales of Fund shares for the
period January 1, 1995 to September 10, 1995.
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of Class A shares of the 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........................... 1997* $ 90,000 $ 576,000 $ --
1996 $ 65,000 $ 462,000 $ 41,000
1995** $ -- $ 117,000 $ 6,000
High Return Equity Fund................... 1997* $3,113,000 $13,161,000 $221,000
1996 $ 601,000 $ 4,531,000 $356,000
1995** $ -- $ 427,000 $ 52,000
Small Cap Value Fund...................... 1997* $ 584,000 $ 4,828,000 $ 68,000
1996 $ 231,000 $ 1,734,000 $114,000
1995** $ -- $ 178,000 $ 13,000
</TABLE>
- ---------------
*Amounts paid from January 1, 1997 through November 30, 1997.
**Amounts paid from September 11, 1995 through December 31, 1995.
B-9
<PAGE> 51
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides
for fees charged to Class B and Class C shares that are used by KDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Funds and of KDI in connection with the Rule 12b-1
Plans for the Class B and Class C shares are set forth below. A portion of the
marketing, sales and operating expenses shown below could be considered overhead
expense.
<TABLE>
<CAPTION>
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...... 1997* $ 353,000 62,000 989,000 --
1996 $ 95,000*** 15,000 584,000 15,000
1995** $ 7,000 -- 172,000 12,000
High Return Equity
Fund............... 1997* $5,477,000 817,000 29,872,000 --
1996 $ 750,000*** 127,000 7,215,000 126,000
1995** $ 15,000 1,000 455,000 57,000
Small Cap Value
Fund............... 1997* $1,716,000 221,000 9,907,000 --
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...... 96,000 7,000 287,000 7,000 166,000
148,000 9,000 293,000 57,000 74,000
14,000 3,000 34,000 5,000 3,000
High Return Equity
Fund............... 2,812,000 210,000 7,887,000 330,000 2,538,000
1,186,000 75,000 2,455,000 468,000 422,000
35,000 9,000 75,000 13,000 7,000
Small Cap Value
Fund............... 867,000 65,000 2,409,000 78,000 810,000
391,000 25,000 813,000 134,000 156,000
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 C SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 1997* $ 29,000 2,000 38,000 --
1996 $ 2,000*** 2,000 15,000 --
1995** $ -- -- -- --
High Return Equity 1997
Fund............... $901,000 31,000 1,417,000 --
1996 $ 96,000*** 3,000 281,000 --
1995** $ 1,000 -- 1,000 --
Small Cap Value 1997*
Fund............... $392,000 22,000 677,000 --
1996 $ 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 C SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 12,000 1,000 35,000 9,000 9,000
20,000 1,000 41,000 6,000 3,000
-- 1,000 -- -- --
High Return Equity
Fund............... 565,000 42,000 1,309,000 32,000 150,000
202,000 13,000 237,000 55,000 22,000
5,000 1,000 11,000 2,000 --
Small Cap Value
Fund............... 248,000 19,000 537,000 10,000 69,000
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 January 1, 1997 through November 30, 1997.
** Amounts paid from September 11, 1995 through December 31, 1995.
*** Amounts shown are after expense waiver.
ADMINISTRATIVE SERVICES. Administrative services are provided to KVS under an
administrative services agreement ("administrative agreement") with KDI, which
became effective September 11, 1995. KDI bears all its expenses of providing
services pursuant to the administrative agreement between KDI and KVS, including
the payment of service fees. KVS pays KDI 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.
KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors in KVS. The
B-10
<PAGE> 52
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate of up to .25% of the net assets in
the Funds' accounts that it maintains and services attributable to Class A
shares, commencing with the month after investment. With respect to Class B and
Class C shares, KDI currently advances to firms the first-year service fee at a
rate of up to .25% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms a service fee at a rate of up to
.25% (calculated monthly and normally paid quarterly) of the net assets
attributable to Class B and C shares maintained and serviced by the firm. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or KVS. Firms to which service fees may be
paid may include affiliates of KDI.
The following information concerns the administrative services fee paid by each
Fund.
<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...... 1997* $ 146,000 111,000 10,000 284,000 --
1996 $ 32,000*** 42,000 3,000 114,000 2,000
1995** $ 5,000 3,000 -- 16,000 1,000
High Return Equity
Fund............... 1997* $1,732,000 1,818,000 299,000 4,879,000 15,000
1996 $ 304,000 293,000 38,000 941,000 19,000
1995** $ 19,000 6,000 -- 41,000 4,000
Small Cap Value...... 1997* $ 936,000 577,000 130,000 2,042,000 5,000
1996 $ 42,000*** 109,000 19,000 351,000 6,000
1995** $ 7,000 3,000 -- 20,000 1,000
</TABLE>
- ---------------
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from September 11, 1995 through December 31, 1995.
*** Amounts shown are after expense waiver.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Funds. Currently, the
administrative services fee payable to KDI is based only upon KVS assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from KVS
to firms in the form of service fees. The effective administrative services fee
rate to be charged against all assets of KVS while this procedure is in effect
will depend upon the proportion of KVS assets that is in accounts for which a
firm of record provides administrative services.
Certain directors or officers of KVS are also directors or officers of Scudder
Kemper or KDI as indicated under "Officers and Directors."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 as sub-custodian, have custody of all securities and cash of
KVS maintained in 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 KVS. IFTC is also the KVS
B-11
<PAGE> 53
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSVC"), an affiliate of Scudder Kemper, serves as
"Shareholder Service Agent" of 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 KSVC, annual account fees of $6 per account plus account set
up, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of
KVS. The following shows for each Fund, the shareholder service fees IFTC
remitted to KSVC for the fiscal period from January 1, 1997 through November 30,
1997.
<TABLE>
<CAPTION>
FEES IFTC
PAID TO KSVC
FUND --------------
<S> <C>
Contrarian Fund............................................. $ 386,000
High Return Equity Fund..................................... $4,150,000
Small Cap Value Fund........................................ $2,132,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. KVS's independent auditors,
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audit and
report on KVS annual financial statements, review certain regulatory reports and
KVS's federal income tax returns, and perform other professional accounting,
auditing, tax and advisory services when engaged to do so by KVS. Shareholders
will receive annual audited financial statements and semi-annual unaudited
financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Funds.
PURCHASE AND REDEMPTION OF SHARES
As described in KVS'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 KVS 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 KVS at the applicable net asset value per
share of such Fund as described in KVS'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.
KVS 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 KVS 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
KVS'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 KVS 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
B-12
<PAGE> 54
assessment of the administrative services fee with respect to each Class does
not result in KVS's dividends constituting "preferential dividends" under the
Internal Revenue Code, and (b) that the conversion of Class B shares to Class A
shares does not constitute a taxable event under the Internal Revenue Code. The
conversion of Class B shares to Class A shares may be suspended if such
assurance is not available. In that event, no further conversions of Class B
shares would occur, and shares might continue to be subject to the distribution
services fee for an indefinite period that may extend beyond the proposed
conversion date as described in the prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income and the Small Cap Value Fund
normally distributes 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 KVS 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. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed.
A Fund's options and futures transactions are subject to special tax provisions
that may accelerate or defer recognition of certain gains or losses, change the
character of certain gains or losses, or alter the holding periods of certain of
a Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options, futures and forward contracts held by the
Fund at the end of the fiscal year. Under these provisions, 60% of any capital
gain net income or loss recognized will generally be treated as long-term and
40% as short-term. In addition, the straddle rules of the Code would require
deferral of certain losses realized on positions of a straddle to the extent
that such Fund had unrealized gains in offsetting positions at year end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. Each Fund intends to declare or distribute dividends
during the appropriate periods of an amount sufficient to prevent imposition of
the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of shares held six months or less will be treated
as long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. An exchange of a Fund's shares
for shares of another fund is treated as a redemption and reinvestment for
federal
B-13
<PAGE> 55
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 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 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 KVS'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
B-14
<PAGE> 56
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-15
<PAGE> 57
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--NOVEMBER 30, 1997
<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(+) $19,916 $10,861 $5,245 $36,022 260.2% $38,220 282.2% 429.0%
Five Years 14,954 5,176 1,803 21,933 119.3 23,266 132.7 168.0
One Year 10,699 792 262 11,753 17.5 12,473 24.7 22.2
CLASS B SHARES
Life of Fund(++) $13,813 $ 1,817 $ 450 $15,780 57.8% $16,080 60.8% 78.0%
One Year 11,340 840 173 12,053 20.5 12,353 23.5 22.2
CLASS C SHARES
Life of Fund(++) $13,800 $ 1,817 $ 429 $ * *% $16,046 60.5% 78.0%
One Year 11,341 841 153 * * 12,335 23.4 22.2
<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(+) 389.5% 38.6% 379.63% 308.6% 67.3%
Five Years 150.3 13.7 163.38 129.1 25.8
One Year 28.5 1.8 35.18 23.7 5.2
CLASS B SHARES
Life of Fund(++) 78.1% 5.6% 81.69% 62.3% 10.7%
One Year 28.5 1.8 35.18 23.7 5.2
CLASS C SHARES
Life of Fund(++) 78.1% 5.6% 81.69% 62.3% 10.7%
One Year 28.5 1.8 35.18 23.7 5.2
</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(+) 14.1% * * 18.7% 17.8% 3.4% 17.45% 15.5 5.4
Life of Fund(++) * 22.8 23.7 29.7 29.7 2.5 29.16 24.4 4.7
Five Years 17.0 * * 21.8 20.1 2.6 21.37 18.0 4.7
One Year 17.5 20.5 23.4 22.2 28.5 1.8 35.18 23.7 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-16
<PAGE> 58
HIGH RETURN EQUITY FUND--NOVEMBER 30, 1997
<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(+) 31,593 11,193 10,649 53,435 434.4 56,694 466.9 429.0
Five Years 21,966 1,167 2,239 25,372 153.7 26,925 169.3 168.0
One Year 11,335 132 406 11,873 18.7 12,598 26.0 22.2
CLASS B SHARES
Life of Fund(++) 17,157 537 617 18,011 80.1 18,311 83.1 78.0
One Year 12,016 140 324 12,180 21.8 12,480 24.8 22.2
CLASS C SHARES
Life of Fund(++) 17,163 537 626 * * 18,326 83.3 78.0
One Year 12,015 140 324 * * 12,479 24.8 22.2
<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(+) 389.5 38.6 354.16 281.8
Five Years 150.3 13.7 156.03 121.2
One Year 28.5 1.8 29.99 23.8
CLASS B SHARES
Life of Fund(++) 78.1 5.6 74.70 59.4
One Year 28.5 1.8 29.99 23.8
CLASS C SHARES
Life of Fund(++) 78.1 5.6 74.70 59.4
One Year 28.5 1.8 29.99 23.8
</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(+) 18.8 * * 18.7 17.8 3.4 16.79 14.8
Life of Fund(++) * 30.4 31.4 29.7 29.7 2.5 27.01 23.4
Five Years 20.5 * * 21.8 20.1 2.6 20.69 17.2
One Year 18.7 21.8 24.8 22.2 28.5 1.8 29.99 23.8
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the S&P/Barra's Value which is since March
31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
S&P/Barra's Value which is since August 31, 1995.
N/A - Not Available.
SMALL CAP VALUE FUND--NOVEMBER 30, 1997
<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(+) 20,574 3,295 1,859 25,728 157.3 27,298 173.0 165.5
Five Year 17,719 2,837 1,601 22,157 23,512 135.1 168.0
One Year 11,053 25 245 11,323 13.2 12,017 20.2 22.2
CLASS B SHARES
Life of Fund(++) 13,625 250 951 14,526 45.3 14,826 48.3 78.0
One Year 11,638 26 237 11,601 16.0 11,901 19.0 22.2
CLASS C SHARES
Life of Fund(++) 13,657 251 953 * * 14,861 48.6 78.0
One Year 11,640 26 237 11,903 19.0 22.2
<CAPTION>
Standard Consumer Russell Lipper Small
TOTAL & Poor's Price 2000(R) Cap
RETURN 500 Index Value Fund
TABLE (4) (5) (10) (11)
------ -------- -------- ------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 164.6 15.6 178.97 127.6
Five Year 150.3 13.7 145.74 105.1
One Year 28.5 1.8 31.69 13.5
CLASS B SHARES
Life of Fund(++) 78.1 5.6 66.94 34.90
One Year 28.5 1.8 31.69 13.5
CLASS C SHARES
Life of Fund(++) 78.1 5.6 66.94 34.90
One Year 28.5 1.8 31.69 13.5
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Lipper
ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Small
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 2000(R) Cap
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(+) 18.6 * * 19.3 19.2 2.7 20.17 16.0
Life of Fund(++) * 18.3 19.5 29.7 29.7 2.5 24.56 14.4
Five Years 17.3 * * 21.8 20.1 2.6 19.70 15.5
One Year 13.2 16.0 19.0 22.2 28.5 1.8 31.69 13.5
</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
Russell 2000 Value which is since August 31, 1995.
N/A - Not Available.
B-17
<PAGE> 59
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B and Class C
shares for the contingent deferred sales charge that may be imposed at the
end of the period based upon the schedule for shares sold currently; see
"Redemption or Repurchase of Shares" in the prospectus.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Value Index is an unmanaged index comprised of common
stocks of larger U.S. companies with less than average growth orientation.
Companies in this index generally have low price to book and price-earnings
ratios, higher dividend yields and lower forecasted growth values. Assumes
reinvestment of dividends. Source is Lipper Analytical Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of the 30 largest growth and income mutual funds tracked
by Lipper Analytical Services, Inc. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Standard & Poor's/Barra Value Index is constructed by dividing the
stocks in the S&P 500 Index according to a single attribute: book-to-price
ratio. The Value Index contains firms with higher book-to-price ratios and
is capitalization weighted. Source is Lipper Analytical Services, Inc.
(10) The Russell 2000(R) Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index (small companies) with a less than
average growth orientation. Companies in this index generally have low
price to book and price-earnings ratios. Source is Lipper Analytical
Services, Inc.
(11) The Lipper Small Cap 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 Towers Data Systems.
(12) The Lipper Equity Income Fund Index is a net asset value weighted index of
the 30 largest equity income funds. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund, which includes the current maximum sales charge of 5.75%, with
income and capital gain dividends reinvested in additional shares. Each table
covers the period from commencement of operations of the Fund to December 31,
1997.
CONTRARIAN FUND (3/18/88)
<TABLE>
<CAPTION>
-------DIVIDENDS-------- -----CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ---------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1988 $ 132 $ 0 $ 9,925 $ 137 $ 0 $10,062
1989 285 785 10,668 429 806 11,903
1990 277 303 9,512 649 1,019 11,180
1991 307 126 11,645 1,119 1,381 14,145
1992 303 0 12,700 1,542 1,505 15,747
1993 267 1,001 12,812 1,827 2,537 17,176
1994 360 1,483 11,458 1,965 3,748 17,171
1995 473 1,385 15,240 3,130 6,454 24,824
1996 557 1,878 15,956 3,842 8,660 28,458
1997 2,106 1,414 18,540 6,597 11,499 36,636
</TABLE>
B-18
<PAGE> 60
HIGH RETURN EQUITY FUND (3/18/88)
<TABLE>
<CAPTION>
-------DIVIDENDS-------- -----CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 $ 247 $ 0 $10,376 $ 258 $ 0 $10,634
1989 468 2,331 9,539 687 2,370 12,596
1990 524 0 8,326 1,115 2,069 11,510
1991 387 265 11,786 1,990 3,208 16,984
1992 370 123 13,753 2,722 3,872 20,347
1993 298 345 14,581 3,189 4,453 22,223
1994 352 0 14,214 3,449 4,341 22,004
1995 351 589 20,216 5,317 6,782 32,315
1996 1,261 426 24,995 7,887 8,816 41,698
1997 1,832 1,562 30,895 11,632 12,483 55,010
</TABLE>
SMALL CAP VALUE FUND (5/22/92)
<TABLE>
<CAPTION>
-------DIVIDENDS-------- -----CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 $ 28 $405 $10,857 $ 29 $ 411 $11,297
1993 58 507 10,584 86 914 11,584
1994 0 416 10,226 83 1,292 11,601
1995 724 326 13,666 864 2,093 16,623
1996 454 118 17,228 1,557 2,759 21,544
1997 295 460 20,056 2,116 3,685 25,857
</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
B-19
<PAGE> 61
the average monthly yield of treasury bills maturing in six months. Due to their
short maturities, Treasury bills generally experience very low market value
volatility.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC's Money Fund Report Averages(R) (All
Taxable). As reported by IBC Financial Data, Inc., all investment results
represent total return (annualized results for the period net of management fees
and expenses) and one year investment results are effective annual yields
assuming reinvestment of dividends.
The following tables compare the performance of the Class A shares of the Funds
over various periods ended November 30, 1997 with that of other mutual funds
within the categories described below according to data reported by Lipper
Analytical Services, Inc. ("Lipper"), New York, New York, which is a mutual fund
reporting service. Lipper performance figures are based on changes in net asset
value, with all income and capital gain dividends reinvested. Such calculations
do not include the effect of any sales charges. Future performance cannot be
guaranteed. Lipper publishes performance analyses on a regular basis. Each
category includes funds with a variety of objectives, policies and market and
credit risks that should be considered in reviewing these rankings.
<TABLE>
<CAPTION>
GROWTH & INCOME
FUNDS
CONTRARIAN FUND ---------------
<S> <C>
Five Years................................................ 92 of 235
One Year.................................................. 245 of 608
</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 60
One Year.................................................. 45 of 178
</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.................................................. 255 of 447
Five Years................................................ 47 of 134
</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 KVS, their birthdates, their principal occupations
and their affiliations, if any, with Scudder Kemper Investments, Inc. ("Scudder
Kemper") and Kemper Distributors, Inc. ("KDI"), or their affiliates are listed
below. All persons named as Directors also serve in similar capacities for other
funds advised by Scudder Kemper.
B-20
<PAGE> 62
JAMES E. AKINS (10/15/26), Director, 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, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.
FREDERICK T. KELSEY (4/25/27), Director, 4010 Arbor Lane, Unit 102, Northfield,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; formerly, Trustee of the Pilot Funds.
DANIEL PIERCE (3/18/34), Director*, 345 Park Avenue, New York, New York;
Chairman of the Board and Managing Director, Scudder Kemper; Director, Fiduciary
Trust Company and Fiduciary Company Incorporated.
FRED B. RENWICK (2/1/30), Director, 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.
JOHN B. TINGLEFF (5/4/35), Director, 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.
EDMOND D. VILLANI (3/4/47), Director*, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Scudder Kemper.
JOHN G. WEITHERS (8/8/33), Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper.
THOMAS H. FORESTER (12/15/58), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper.
FREDERICK L. GASKIN (12/18/61), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper.
JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
JONATHAN KAY (9/22/61), Vice President*, 345 Park Avenue, New York, New York;
Vice President, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
B-21
<PAGE> 63
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
THOMAS F. SASSI (11/7/42), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
STEVEN T. STOKES (7/18/62), Vice President*, 280 Park Avenue, 40th Floor, New
York, New York; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI.
- ---------------
* "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 KVS. The table below shows amounts from KVS paid or
accrued to those directors who are not designated "interested persons" during
the fiscal period January 1, 1997 through November 30, 1997, except that the
total compensation from the Kemper Fund complex is for the 1997 calendar year.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM KEMPER FUND
COMPENSATION COMPLEX PAID TO
NAME OF BOARD MEMBERS FROM KVS BOARD MEMBERS(2)
--------------------- ------------ ----------------
<S> <C> <C>
James E. Akins.............................................. $13,700 $106,300
Arthur R. Gottschalk(1)..................................... $15,400 $121,100
Frederick T. Kelsey......................................... $13,700 $111,300
Fred B. Renwick............................................. $13,700 $106,300
John B. Tingleff............................................ $13,700 $106,300
John G. Weithers............................................ $13,700 $106,300
</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 period ended November 30, 1997 for KVS is $14,500 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 39
fund portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios. Total Compensation does not reflect
amounts paid by Scudder Kemper Investments, Inc. to the board members for
meetings regarding the combination of Scudder and ZKI. Such amounts totaled
$42,800, $10,725, $39,000, $42,900, $42,900, and $42,900 for Messrs. Akins,
Gottschalk, Kelsey, Renwick, Tingleff and Weithers, respectively.
As of January 21, 1998, the officers and directors of KVS as a group owned less
than 1% of each Fund.
B-22
<PAGE> 64
PRINCIPAL HOLDERS OF SECURITIES
As of January 21, 1998 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>
*NFSC....................................................... B 7.74
1 World Financial Center
200 Liberty St., 4th floor
New York NY 10281-1003
*NFSC....................................................... C 5.30
1 World Financial Center
200 Liberty St., 4th floor
New York NY 10281-1003
*MLPF & S................................................... C 7.46
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-23
<PAGE> 65
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
*NFSC....................................................... A 7.38
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette.................................. A 5.60
Securities Corporation Inc
P.O. Box 2052
Jersey City NJ 07303
*NFSC....................................................... B 10.01
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette.................................. B 5.59
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*MLPF & S................................................... B 5.48
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Raymond James & Assoc Inc.................................. C 5.63
Roy I Frekse IRA
5554 Devonshire Ave
St. Louis MO 63109
*NFSC....................................................... C 7.95
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPF & S................................................... C 17.16
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette.................................. C 6.97
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*Scudder Kemper Investments, Inc............................ I 100.00
401(k) Plan
345 Park Ave.
New York NY 10154
</TABLE>
B-24
<PAGE> 66
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
*NFSC....................................................... A 6.14
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette.................................. A 9.97
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
*MLPF & S................................................... A 20.55
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette.................................. B 5.82
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
*NFSC....................................................... B 10.00
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPF & S................................................... B 11.51
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette.................................. C 7.50
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*NFSC....................................................... C 8.51
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPS & S................................................... C 28.58
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Scudder Kemper Investments, Inc............................ I 100.00
401(k) Plan
345 Park Ave.
New York NY 10154
</TABLE>
- ---------------
* Record owner only.
B-25
