Filed electronically with the Securities and Exchange Commission
on February 1, 2000
File No. 33-18477
File No. 811-5385
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 25 / X /
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 27 / X /
KEMPER VALUE SERIES, INC.
-------------------------
(Formerly Known as Kemper Value Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, IL 60606
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
Philip J. Collora, Vice President and Secretary
Kemper Value Series, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ X / On February 1, 2000 pursuant to paragraph (b)
/ / On __________________ pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485
/ / On __________________ pursuant to paragraph (a) (3) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment
<PAGE>
Kemper Equity Funds/Value Style
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 1, 2000
CLASS I SHARES
- --------------------------------------------------------------------------------
The above funds currently offer four classes of shares to provide investors with
different purchasing options. These are Class A, Class B and Class C shares,
which are described in the funds' prospectus, and Class I shares, which are
described in the prospectus as supplemented hereby. When placing purchase
orders, investors must specify for which class of shares they are ordering.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a fund on behalf of each
trust; and (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a fund; and (6) investment
companies managed by Scudder Kemper that invest primarily in other investment
companies. Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the funds, and, in the
case of category 4 above, selected dealers authorized by KDI. Share certificates
are not available for Class I shares.
<PAGE>
The following information supplements the indicated sections of the prospectus.
Performance
The following table shows how the funds' Class I Shares' returns over different
periods average out. For context, the table has broad-based market indices
(which, unlike the funds, have no fees or expenses). All figures in this section
assume reinvestment of dividends and distributions. As always, past performance
is no guarantee of future results.
Average Annual Total Returns -- Class I shares
Life of Inception
For periods ended December 31, 1999 One Year Class of Class
- --------------------------------------------------------------------------------
Kemper-Dreman High Return
Equity Fund -12.90% 16.00% 11/1/95
- --------------------------------------------------------------------------------
Index 1 21.04% 26.40% 11/30/95
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Kemper Small Cap Value Fund 1.27% 10.38% 10/31/95
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Index 2 -1.49% 11.59% 10/31/95
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Index 1: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: The Russell 2000 Value Index, which measures the performance of those
companies in the Russell 2000 Index with lower price-to-book ratios and lower
expected growth rates.
2
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the funds.
Shareholder fees: Fees paid directly from your investment.
Maximum
Sales Maximum Maximum
Charge Deferred Sales
(Load) Sales Charge
Imposed on Charge (Load)
Purchases (Load) (as Imposed on
(as a % of a % of Reinvested
offering redemption Dividends/ Redemption Exchange
price) proceeds) Distributions Fee Fee
- --------------------------------------------------------------------------------
Kemper
Contrarian
Fund None None None None None
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Kemper-Dreman
High Return
Equity Fund None None None None None
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Kemper Small
Cap Value Fund None None None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
Total
Annual
Fund
Management Distribution Other Operating
Fee (12b-1) Fees Expenses Expenses
- --------------------------------------------------------------------------------
Kemper Contrarian Fund 0.74% None 0.30%* 1.04%*
- --------------------------------------------------------------------------------
Kemper-Dreman High Return
Equity Fund 0.69% None 0.13% 0.82%
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Kemper Small Cap
Value Fund 0.74% None 0.18% 0.92%
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* Estimated for Kemper Contrarian Fund since no Class I shares were issued as
of the fund's fiscal year end.
3
<PAGE>
Example
This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and returns vary from year to year, and
may be higher or lower than those shown.
Fees and expenses if you sold shares after:
1 Year 3 Years 5 Years 10 Years
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Kemper Contrarian Fund $106 $331 $574 $1,271
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Kemper-Dreman High Return
Equity Fund $84 $262 $455 $1,014
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Kemper Small Cap Value Fund $94 $293 $509 $1,131
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4
<PAGE>
Financial Highlights
No financial information is presented for Class I shares of Kemper Contrarian
Fund since no Class I shares were issued as of the fiscal year end of the fund.
Kemper-Dreman High Return Equity Fund
Eleven
months
Year ended ended Year
November 30, November ended Nov. 1 to
----------------------- 30, Dec. 31, Dec. 31,
CLASS I 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Net asset value,
beginning of period $35.71 33.51 26.49 21.51 19.90
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment
income (loss) 0.84(a) 0.95 0.75 0.54 0.04
- -------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on investment
transactions (3.70) 3.76 6.81 5.70 2.03
- -------------------------------------------------------------------------------
Total from investment
operations (2.86) 4.71 7.56 6.24 2.07
- -------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.84) (1.01) (0.48) (0.53) (0.06)
- -------------------------------------------------------------------------------
Net realized gains
on investment
transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- -------------------------------------------------------------------------------
Total distributions (2.40) (2.51) (0.54) (1.26) (0.46)
- -------------------------------------------------------------------------------
Net asset value, end
of period $30.45 35.71 33.51 26.49 21.51
- -------------------------------------------------------------------------------
Total return (%) (8.54) 14.83 28.71** 29.36 10.47(b)**
- -------------------------------------------------------------------------------
5
<PAGE>
Kemper-Dreman High Return Equity Fund (continued)
Eleven
months
Year ended ended Year
November 30, November ended Nov. 1 to
----------------------- 30, Dec. 31, Dec. 31,
CLASS I 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- -------------------------------------------------------------------------------
Net assets, end
of period
($ in millions) 22 31 28 12 3
- -------------------------------------------------------------------------------
Ratio of expenses
before expense
reductions (%) 0.82 0.76 0.83* 0.88 0.85*
- -------------------------------------------------------------------------------
Ratio of expenses
after expense
reductions (%) 0.82 0.76 0.83* 0.88 0.47*
- -------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) 2.47 2.71 2.77* 2.45 1.99*
- -------------------------------------------------------------------------------
Portfolio turnover
rate (%) 33 7 5* 10 18*
- -------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during period.
(b) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not Annualized
6
<PAGE>
Kemper Small Cap Value Fund
For the
period
Eleven Nov. 1
months (commence-
Year ended ended Year ment of
November 30, November ended operations)
----------------------- 30, Dec. 31, to Dec. 31,
CLASS I 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Per share operating performance
- --------------------------------------------------------------------------------
Net asset value,
beginning of period $18.13 22.08 18.40 14.52 14.25
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment
income .15(a) .28 .13 .25(a) --
- --------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investment
transactions (.09) (3.53) 3.55 4.13 1.11
- --------------------------------------------------------------------------------
Total from
investment
operations .06 (3.25) 3.68 4.38 1.11
- --------------------------------------------------------------------------------
Less distributions from:
Net investment
income -- -- -- (.07) --
- --------------------------------------------------------------------------------
Net realized gain -- (.70) -- (.43) (.84)
- --------------------------------------------------------------------------------
Total dividends -- (.70) -- (.50) (.84)
- --------------------------------------------------------------------------------
Net asset value,
end of period $18.19 18.13 22.08 18.40 14.52
- --------------------------------------------------------------------------------
Total return (%) .33% (15.14) 20.00** 30.28(b) 8.03**(b)
- --------------------------------------------------------------------------------
7
<PAGE>
Kemper Small Cap Value Fund (continued)
For the
period
Eleven Nov. 1
months (commence-
Year ended ended Year ment of
November 30, November ended operations)
----------------------- 30, Dec. 31, to Dec. 31,
CLASS I 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- --------------------------------------------------------------------------------
Net assets, end
of period
($ in thousands) 5,568 9,161 14,727 9,001 1,865
- --------------------------------------------------------------------------------
Ratio of expenses
before expense
reductions (%) .92 .86 .89* .84 .90*
- --------------------------------------------------------------------------------
Ratio of expenses
after expense
reductions (%) .92 .86 .89* .84 .47*
- --------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) .81 .81 .94* 1.34 .28*
- --------------------------------------------------------------------------------
Portfolio turnover
rate (%) 47 50 83* 23 86*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during period.
(b) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not Annualized
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." 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.
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, typically will be higher for Class I shares than
for Class A, Class B and Class C shares.
February 1, 2000
<PAGE>
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD (SM)
February 1, 2000
Prospectus
KEMPER EQUITY FUNDS / VALUE STYLE
Kemper Contrarian Fund
Kemper-Dreman Financial Services Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper U.S. Growth And Income Fund
Value Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
[KEMPER LOGO]
<PAGE>
HOW THE INVESTING IN
FUNDS WORK THE FUNDS
2 Kemper Contrarian Fund 26 Kemper U.S. Growth 59 Choosing A Share
And Income Fund Class
8 Kemper-Dreman
Financial Services Fund 32 Kemper Value Fund 64 How To Buy Shares
14 Kemper-Dreman High 38 Other Policies And 65 How To Exchange Or
Return Equity Fund Risks Sell Shares
20 Kemper Small Cap 40 Financial Highlights 66 Policies You Should
Value Fund Know About
72 Understanding
Distributions And Taxes
<PAGE>
How The Funds Work
These funds invest in common stocks, as a way of seeking growth of your
investment.
The funds invest mainly in companies whose stock prices appear low in light of
other measures of worth, such as earnings, book value or cash flow. Each fund
pursues its own goal.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
<PAGE>
TICKER SYMBOLS CLASS: A)KDCAX B)KDCBX C)KDCCX
Kemper
Contrarian Fund
FUND GOAL The fund seeks long-term capital appreciation, with current income as
a secondary objective.
2 | Kemper Contrarian Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in common stocks and
other equity securities of large U.S. companies (those with a market value of $1
billion or more) that the portfolio managers believe are undervalued. Although
the fund can invest in stocks of any economic sector, at times it may emphasize
the financial services sector or other sectors (in fact, it may invest more than
25% of total assets in a single sector). As of December 31, 1999, companies in
which the fund invests had a median market capitalization of approximately
$13.89 billion.
The portfolio managers begin by screening for stocks whose price-to-earnings
ratios are below the average for the S&P 500 Index. The managers then compare a
company's stock price to its book value, cash flow and yield, and analyze
individual companies to identify those that are financially sound and appear to
have strong potential for long-term growth.
The managers assemble the fund's portfolio from among the most attractive
stocks, drawing on analysis of economic outlooks for various sectors and
industries. The managers may favor securities from different sectors and
industries at different times while still maintaining variety in terms of the
sectors and industries represented.
The fund will normally sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the managers'
expectations.
- -[ICON]-------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities), the managers
don't intend to use them as principal investments.
3 | Kemper Contrarian Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the large company portion of the U.S. stock
market. When large company stock prices fall, you should expect the value of
your investment to fall as well. At times, large company stocks may not perform
as well as stocks of smaller or mid-size companies. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies.
To the extent that the fund concentrates in one or more sectors, any factors
affecting those sectors could affect fund performance. For example, financial
services companies could be hurt by such factors as changing government
regulations, increasing competition and interest rate movements.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Investors seeking to diversify a growth-oriented portfolio or add a core holding
to a value-oriented portfolio may want to consider this fund.
- --------------------------------------------------------------------------------
4 | Kemper Contrarian Fund
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- -6.08 26.53 11.32 9.07 -0.03 44.57 14.42 28.73 19.17 -10.73
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Best quarter: 18.90%, Q1 1991 Worst quarter: -20.59%, Q3 1990
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since Since
Since 9/11/95 Since Since 3/18/88
12/31/98 Life of 12/31/94 12/31/89 Life of
1 Year Class B/C 5 Years 10 Years Class A
- --------------------------------------------------------------------------------
Class A -15.86% -- 16.39% 11.91% 12.23%
- --------------------------------------------------------------------------------
Class B -13.92 12.89% -- -- --
- --------------------------------------------------------------------------------
Class C -11.56 13.12 -- -- --
- --------------------------------------------------------------------------------
Index 21.04 26.39* 28.56 18.21 19.03**
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1990 through 1996 would have been lower if operating
expenses hadn't been reduced.
* Since 9/30/95
** Since 3/31/88
5 | Kemper Contrarian Fund
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.74% 0.74% 0.74%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.70 0.83 0.90
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.44 2.32 2.39
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $713 $1,004 $1,317 $2,200
- --------------------------------------------------------------------------------
Class B shares 635 1,024 1,440 2,233
- --------------------------------------------------------------------------------
Class C shares 342 745 1,275 2,726
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $713 $1,004 $1,317 $2,200
- --------------------------------------------------------------------------------
Class B shares 235 724 1,240 2,233
- --------------------------------------------------------------------------------
Class C shares 242 745 1,275 2,726
- --------------------------------------------------------------------------------
6 | Kemper Contrarian Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.73% of average daily net assets.
- -[ICON]-------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Thomas F. Sassi Frederick L. Gaskin
Lead Portfolio Manager o Began investment career
o Began investment career in 1986
in 1971 o Joined the advisor in
o Joined the advisor in 1996
1996 o Joined the fund team
o Joined the fund team in 1997
in 1997
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
7 | Kemper Contrarian Fund
<PAGE>
TICKER SYMBOLS CLASS: A)KDFAX B)KDFBX C)KDFCX
Kemper-Dreman
Financial Services Fund
FUND GOAL The fund seeks to provide long-term capital appreciation.
8 | Kemper-Dreman Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in equity securities
(mainly common stocks) of financial services companies. This may include
companies of any size that commit at least half of their assets to the financial
services sector or derive at least half of their revenues or net income from
that sector. The major types of financial services companies are banks,
insurance companies, savings and loans, securities brokerage firms and
diversified financial companies.
The portfolio manager begins by screening for financial services stocks whose
price-to-earnings ratios are below the average for the S&P 500 Index. The
manager then compares a company's stock price to its book value, cash flow and
yield, and analyzes individual companies to identify those that are financially
sound and appear to have strong potential for long-term growth.
The manager assembles the fund's portfolio from among the most attractive
stocks, drawing on analysis of economic outlooks for various financial
industries. The manager may favor securities from different industries in the
financial sector at different times, while still maintaining variety in terms of
industries and companies represented.
The fund will normally sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the manager's
expectations.
- -[ICON]-------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. stocks, it could invest up to 30% of total
assets in foreign securities, and up to 35% of total assets in investment-grade
debt securities. Also, while the fund is permitted to use various types of
derivatives (contracts whose value is based on, for example, indices, currencies
or securities), the manager doesn't intend to use them as principal investments.
9 | Kemper-Dreman Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform, in this case, financial services stocks. When prices of
financial services stocks fall, you should expect the value of your investment
to fall as well. The fact that the fund concentrates in a single sector
increases this risk, because factors affecting that sector could affect fund
performance. For example, financial services companies could be hurt by such
factors as changing government regulations, increasing competition and interest
rate movements.
Similarly, because the fund isn't diversified and can invest a larger percentage
of assets in a given stock than a diversified fund, factors affecting that stock
could affect fund performance. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These may affect single companies as well as groups of
companies.
Other factors that could affect performance include:
o the manager could be wrong in his analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o the bond portion of the portfolio could be hurt by rising interest rates or
declines in credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may be appropriate for long-term investors who want to gain exposure
to the financial services sector and can accept the above-average risks of a
sector-specific investment.
- --------------------------------------------------------------------------------
10 | Kemper-Dreman Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows the total returns for the fund's Class A shares for the
first complete calendar year. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
-4.52
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Best quarter: 4.74%, Q2 1999 Worst quarter: -13.34%, Q3 1999
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since 12/31/98 Since 3/9/98
1 Year Life of Classes
- --------------------------------------------------------------------------------
Class A -9.99% -4.23%
- --------------------------------------------------------------------------------
Class B -8.38 -3.60
- --------------------------------------------------------------------------------
Class C -5.34 -1.80
- --------------------------------------------------------------------------------
Index 3.97 1.77*
- --------------------------------------------------------------------------------
Index: S&P Financial Index, a capitalization-weighted price-only index
representing 11 financial industries and 74 financial companies.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns would have been lower if operating expenses hadn't been
reduced.
* Since 3/31/98
11 | Kemper-Dreman Financial Services Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.73 0.76 0.69
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.48 2.26 2.19
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $717 $1,016 $1,336 $2,242
- --------------------------------------------------------------------------------
Class B shares 629 1,006 1,410 2,219
- --------------------------------------------------------------------------------
Class C shares 322 685 1,175 2,524
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $717 $1,016 $1,336 $2,242
- --------------------------------------------------------------------------------
Class B shares 229 706 1,210 2,219
- --------------------------------------------------------------------------------
Class C shares 222 685 1,175 2,524
- --------------------------------------------------------------------------------
12 | Kemper-Dreman Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management. Scudder Kemper's team
is comprised of investment professionals, economists, research analysts, traders
and other investment specialists, located across the United States and around
the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.73% of average daily net assets.
The fund's subadviser is Dreman Value Management, L.L.C., Red Bank, NJ. Dreman
Value Management was founded in 1977 and currently manages over $7 billion in
assets. The portfolio manager for this fund is David N. Dreman, founder and
chairman of Dreman Value Management. Widely regarded as a leading proponent of
value-style investment management, Mr. Dreman began his investment career in
1957 and has managed the fund since inception.
13 | Kemper-Dreman Financial Services Fund
<PAGE>
TICKER SYMBOLS CLASS: A)KDHAX B)KDHBX C)KDHCX
Kemper-Dreman
High Return Equity Fund
FUND GOAL The fund seeks to achieve a high rate of total return.
14 | Kemper-Dreman High Return Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in equity securities
(mainly common stocks). The fund focuses on stocks of large U.S. companies
(those with a market value of $1 billion or more) that the portfolio manager
believes are undervalued. Although the fund can invest in stocks of any economic
sector, at times it may emphasize the financial services sector or other sectors
(in fact, it may invest more than 25% of total assets in a single sector). As of
December 31, 1999, companies in which the fund invests had a median market
capitalization of approximately $5.13 billion and an average market
capitalization of $17 billion.
The portfolio manager begins by screening for stocks whose price-to-earnings
ratios are below the average for the S&P 500 Index. The manager then compares a
company's stock price to its book value, cash flow and yield, and analyzes
individual companies to identify those that are financially sound and appear to
have strong potential for long-term growth and income.
The manager assembles the fund's portfolio from among the most attractive
stocks, drawing on analysis of economic outlooks for various sectors and
industries. The manager may favor securities from different sectors and
industries at different times, while still maintaining variety in terms of the
sectors and industries represented.
The fund will normally sell a stock when it reaches a target price, its
fundamental factors have changed or it has performed below the manager's
expectations.
- -[ICON]-------------------------------------------------------------------------
The manager may use various types of derivatives (contracts whose value is based
on, for example, indices, currencies or securities), particularly
exchange-traded stock index futures, which offer the fund exposure to future
stock market movements without direct ownership of stocks. While the fund
invests mainly in U.S. stocks, it could invest up to 20% of total assets in
foreign securities.
15 | Kemper-Dreman High Return Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the large company portion of the U.S. stock
market. When large company stock prices fall, you should expect the value of
your investment to fall as well. At times, large company stocks may not perform
as well as stocks of smaller or mid-size companies. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies.
To the extent that the fund concentrates in one or more sectors, any factors
affecting those sectors could affect fund performance. For example, financial
services companies could be hurt by such factors as changing government
regulations, increasing competition and interest rate movements.
Other factors that could affect performance include:
o the manager could be wrong in his analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Thisfund may serve investors with long-term goals who are interested in a
large-cap value fund that may focus on certain sectors of the economy.
- --------------------------------------------------------------------------------
16 | Kemper-Dreman High Return Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- -8.63 47.57 19.80 9.22 -0.99 46.86 28.79 31.92 11.96 -13.23
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Best quarter: 33.22%, Q1 1991 Worst quarter: -22.84%, Q3 1990
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since Since
Since 9/11/95 Since Since 3/18/88
12/31/98 Life of 12/31/94 12/31/89 Life of
1 Year Class B/C 5 Years 10 Years Class A
- --------------------------------------------------------------------------------
Class A -18.22% -- 17.97% 14.84% 15.28%
- --------------------------------------------------------------------------------
Class B -16.31 14.31% -- -- --
- --------------------------------------------------------------------------------
Class C -13.91 14.66 -- -- --
- --------------------------------------------------------------------------------
Index 21.04 26.39* 28.56 18.21 19.03**
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1990 through 1995 would have been lower if operating
expenses hadn't been reduced.
* Since 9/30/95
** Since 3/31/88
17 | Kemper-Dreman High Return Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.69% 0.69% 0.69%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.53 0.61 0.57
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.22 2.05 2.01
- -------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $692 $940 $1,207 $1,967
- --------------------------------------------------------------------------------
Class B shares 608 943 1,303 1,970
- --------------------------------------------------------------------------------
Class C shares 304 631 1,083 2,338
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $692 $940 $1,207 $1,967
- --------------------------------------------------------------------------------
Class B shares 208 643 1,103 1,970
- --------------------------------------------------------------------------------
Class C shares 204 631 1,083 2,338
- --------------------------------------------------------------------------------
18 | Kemper-Dreman High Return Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management. Scudder Kemper's team
is comprised of investment professionals, economists, research analysts, traders
and other investment specialists, located across the United States and around
the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.69% of average daily net assets.
The fund's subadviser is Dreman Value Management, L.L.C., Red Bank, NJ. Dreman
Value Management was founded in 1977 and currently manages over $7 billion in
assets. The portfolio manager for this fund is David N. Dreman, founder and
chairman of Dreman Value Management. Widely regarded as a leading proponent of
value-style investment management, Mr. Dreman began his investment career in
1957 and has managed the fund since inception.
19 | Kemper-Dreman High Return Equity Fund
<PAGE>
TICKER SYMBOLS CLASS: A)KDSAX B)KDSBX C)KDSCX
Kemper
Small Cap Value Fund
FUND GOAL The fund seeks long-term capital appreciation.
20 | Kemper Small Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in undervalued common
stocks of small U.S. companies, which the fund defines as companies that are
similar in market value to those in the Russell 2000 Index ($1.4 billion or less
as of 12/31/99).
The portfolio managers begin by screening for small companies whose stock prices
appear low relative to other companies in the same sector (rather than on an
absolute basis). A quantitative stock valuation model compares each company's
stock price to the company's earnings, book value, sales and other measures of
performance potential. The managers also look for factors that may signal a
rebound for a company, whether through a recovery in its markets, a change in
business strategy or other factors.
The managers then assemble the fund's portfolio from among the qualifying
stocks, using portfolio optimization software that weighs information about the
potential return and risks of each stock.
The managers diversify the fund's investments among many companies (typically
over 150), and expect to keep the fund's sector weightings similar to those of
the overall small-cap market.
The fund will normally sell a stock when it no longer qualifies as a small
company, when it is no longer considered undervalued or when the managers
believe other investments offer better opportunities.
- -[ICON]-------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. stocks, it could invest up to 20% of total
assets in foreign securities. Also, while the fund is permitted to use various
types of derivatives (contracts whose value is based on, for example, indices,
currencies or securities), the managers don't intend to use them as principal
investments.
21 | Kemper Small Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the small company portion of the U.S. stock
market. When small company stock prices fall, you should expect the value of
your investment to fall as well. Small company stocks tend to be more volatile
than stocks of larger companies, in part because small companies tend to be less
established than larger companies and more vulnerable to competitive challenges
and bad economic news. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies.
To the extent that the fund focuses on a given sector, any factors affecting
that sector could affect portfolio securities. For example, the emergence of new
technologies could hurt electronics or medical technology companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o foreign securities may be more volatile than their U.S. counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may make sense for value-oriented investors who are interested in
small-cap market exposure with potentially lower risk than a growth-oriented
small-cap fund.
- --------------------------------------------------------------------------------
22 | Kemper Small Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
2.54 0.15 43.29 29.60 20.02 -12.82 0.65
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Best quarter: 16.41%, Q2 1995 Worst quarter: -24.07%, Q3 1998
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since Since
Since 9/11/95 Since 5/22/92
12/31/98 Life of 12/31/94 Life of
1 Year Class B/C 5 Years Class A
- --------------------------------------------------------------------------------
Class A -5.15% -- 13.02% 11.37%
- --------------------------------------------------------------------------------
Class B -3.11 5.61% -- --
- --------------------------------------------------------------------------------
Class C 0.06 6.11 -- --
- --------------------------------------------------------------------------------
Index -1.49 10.30* 13.14 13.26**
- --------------------------------------------------------------------------------
Index: The Russell 2000 Value Index, which measures the performance of those
companies in the Russell 2000 Index with lower price-to-book ratios and lower
expected growth rates.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1993 through 1996 would have been lower if operating
expenses hadn't been reduced.
* Since 9/30/95
** Since 5/31/92
23 | Kemper Small Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.74% 0.74% 0.74%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.81 0.91 0.79
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.55 2.40 2.28
- -------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $724 $1,036 $1,371 $2,314
- --------------------------------------------------------------------------------
Class B shares 643 1,048 1,480 2,332
- --------------------------------------------------------------------------------
Class C shares 331 712 1,220 2,615
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $724 $1,036 $1,371 $2,314
- --------------------------------------------------------------------------------
Class B shares 243 748 1,280 2,332
- --------------------------------------------------------------------------------
Class C shares 231 712 1,220 2,615
- --------------------------------------------------------------------------------
24 | Kemper Small Cap Value Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.74% of average daily net assets.
- -[ICON]-------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day
management:
James M. Eysenbach Calvin S. Young
Lead Portfolio Manager o Began investment career
o Began investment career in 1988
in 1984 o Joined the advisor in
o Joined the advisor in 1990
1986 o Joined the fund team
o Joined the fund team in 1999
in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
25 | Kemper Small Cap Value Fund
<PAGE>
TICKER SYMBOLS CLASS: A)KUGAX B)KUGBX C)KUGCX
Kemper
U.S. Growth And
Income Fund
FUND GOAL The fund seeks to provide long-term growth of capital, current
income and growth of income.
26 | Kemper U.S. Growth And Income Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 80% of total assets in equities (mainly
common stocks) of U.S. companies. The fund invests primarily in companies that
are similar in size to the companies in the S&P 500 Index.
The portfolio managers normally begin by screening for stocks that pay
above-average dividends, that the managers believe offer the prospect of
increasing dividends in the future and that appear undervalued. The managers
then analyze individual companies to identify those that are financially sound
and appear to be well managed, competitive and positioned for long-term growth.
The fund may invest in dividend-paying and non-dividend paying stocks.
The managers assemble the fund's portfolio from among the most attractive
stocks, drawing on analysis of economic outlooks for various sectors and
industries. The managers may favor securities from different sectors and
industries at different times, while still maintaining variety in terms of
sectors and industries represented.
The fund normally will, but is not obligated to, sell a stock when its yield is
low compared to the S&P 500 or the stock's own historical level, if it appears
unlikely to pay a dividend when the managers believe its price is unlikely to go
much higher or when other investments offer better opportunities.
- -[ICON]-------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities), the managers
don't intend to use them as principal investments.
27 | Kemper U.S. Growth And Income Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the large company portion of the U.S. stock
market. When large company stock prices fall, you should expect the value of
your investment to fall as well. At times, large company stocks may not perform
as well as stocks of smaller or mid-size companies. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
For investors with long-term goals who are looking for an investment that has
potentially lower risks than growth style large-cap funds, this fund may be a
logical choice.
- --------------------------------------------------------------------------------
28 | Kemper U.S. Growth And Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows the total returns for the fund's Class A shares for the
first complete calendar year. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
7.43
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Best quarter: 11.03%, Q2 1999 Worst quarter: -11.19%, Q3 1999
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since 12/31/98 Since 1/30/98
1 Year Life of Classes
- --------------------------------------------------------------------------------
Class A 1.21% 4.47%
- --------------------------------------------------------------------------------
Class B 3.73 5.54%
- --------------------------------------------------------------------------------
Class C 6.66 6.94
- --------------------------------------------------------------------------------
Index 21.04 25.19*
- --------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns would have been lower if operating expenses hadn't been
reduced.
* Since 1/31/98.
29 | Kemper U.S. Growth And Income Fund
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.60% 0.60% 0.60%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 1.50 1.62 1.43
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 2.10 2.97 2.78
- -------------------------------------------------------------------------------
Expense Reimbursement 0.74 0.96 0.79
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 1.36 2.01 1.99
- --------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
*** By contract, total operating expenses are capped at 1.36%, 2.01% and 1.99%
through 1/31/2001 for Class A, B and C shares, respectively.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $706 $1,215 $1,749 $3,205
- --------------------------------------------------------------------------------
Class B shares 604 1,214 1,848 3,215
- --------------------------------------------------------------------------------
Class C shares 302 870 1,562 3,406
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $706 $1,215 $1,749 $3,205
- --------------------------------------------------------------------------------
Class B shares 204 914 1,648 3,215
- --------------------------------------------------------------------------------
Class C shares 202 870 1,562 3,406
- --------------------------------------------------------------------------------
30 | Kemper U.S. Growth And Income Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the fund did not pay a
management fee due to an expense waiver by Scudder Kemper.
- -[ICON]-------------------------------------------------------------------------
FUND MANAGERS
Kathleen T. Millard Greg Adams
Lead Portfolio Manager o Began investment career
o Began investment career in 1987
in 1984 o Joined the advisor in
o Joined the advisor in 1999
1991 o Joined the fund team
o Joined the fund team in 1999
in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
31 | Kemper U.S. Growth And Income Fund
<PAGE>
TICKER SYMBOLS CLASS: A)KVLAX B)KVLBX C)KVLCX
Kemper
Value Fund*
FUND GOAL The fund seeks long-term growth of capital through investment in
undervalued equity securities.
* Kemper Value Fund is properly known as Value Fund.
32 | Kemper Value Fund
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund seeks long-term growth of capital through investment in undervalued
equity securities. The fund normally invests at least 80% of net assets in
equity securities, primarily common stocks of larger, established U.S. companies
(companies with a market value of $1 billion or more). As of December 31, 1999,
companies in which the fund invests had a median market capitalization of
approximately $29.3 billion.
The portfolio managers begin by ranking the stocks in the Russell 1000 Index,
using a proprietary computer model that compares a company's stock price to its
earnings, book value, cash flow and other quantitative measures. The managers
then analyze those companies that the model indicates are most undervalued,
seeking to identify those whose stock prices appear likely to rebound due to a
particular factor such as a merger, reorganization or business trend. The
managers also consider the impact on the fund of each stock's potential risk
factors and expected volatility.
The managers identify the 60 to 90 most attractive stocks, drawing on analysis
of economic outlooks for various sectors and industries. Based on these
outlooks, the managers may favor securities from different sectors and
industries at different times, while still maintaining variety in terms of the
sectors, industries and companies represented.
The fund will normally sell a stock when the managers believe it is fairly
valued, it may not benefit from the current market, its fundamental factors have
changed or it has performed below expectations.
- -[ICON]-------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities such as convertible securities and preferred stocks. Also while the
fund is permitted to use various types of derivatives (contracts whose value is
based on, for example, indices, currencies or securities), the managers don't
intend to use them as principal investments, and might not use them at all.
33 | Kemper Value Fund
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the large company portion of the U.S. stock
market. When large company stock prices fall, you should expect the value of
your investment to fall as well. Large company stocks at times may not perform
as well as stocks of smaller or mid-size companies. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends or other matters
o value stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
For investors with long-term goals who are looking for an investment that has
potentially lower risks than other large-cap funds, this fund may be a logical
choice.
- --------------------------------------------------------------------------------
34 | Kemper Value Fund
<PAGE>
Performance
The bar chart shows the total returns for the fund's Class A shares for the
first complete calendar year. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has broad-based market indices (which, unlike the fund,
have no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
4.07
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Best quarter: 9.24%, Q2 1999 Worst quarter: -10.34%, Q3 1999
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1999)
- --------------------------------------------------------------------------------
Since 12/31/98 Since 4/16/98
1 Year Life of Classes
- --------------------------------------------------------------------------------
Class A -1.93% 2.52%
- --------------------------------------------------------------------------------
Class B 0.13 -1.60
- --------------------------------------------------------------------------------
Class C 3.15 0.13
- --------------------------------------------------------------------------------
Index 1 7.35 6.12*
- --------------------------------------------------------------------------------
Index 2 21.04 19.80*
- --------------------------------------------------------------------------------
Index 1: Russell 1000 Value Index, which consists of those stocks in the Russell
1000 Index that have less than average growth orientation.
- --------------------------------------------------------------------------------
Index 2: Standard & Poor's 500 Composite Stock Price Index, an unmanaged
capitalization-weighted index that includes 500 large-cap U.S. stocks.
- --------------------------------------------------------------------------------
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns would have been lower if operating expenses hadn't been
reduced.
* Since 4/30/98.
35 | Kemper Value Fund
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On
Purchases (as % of offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.70% 0.70% 0.70%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.88 0.90 0.90
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.58 2.35 2.35
- -------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $710 $1,030 $1,371 $2,333
- --------------------------------------------------------------------------------
Class B shares 632 1,028 1,451 2,315
- --------------------------------------------------------------------------------
Class C shares 329 725 1,248 2,681
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $710 $1,030 $1,371 $2,333
- --------------------------------------------------------------------------------
Class B shares 232 728 1,251 2,315
- --------------------------------------------------------------------------------
Class C shares 229 725 1,248 2,681
- --------------------------------------------------------------------------------
36 | Kemper Value Fund
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.70% of average daily net assets.
- -[ICON]-------------------------------------------------------------------------
FUND MANAGERS
Lois R. Roman Jonathan Lee
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1988 o Joined the advisor in
o Joined the advisor in 1999
1994 o Joined the fund team
o Joined the fund team in 1999
in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
37 | Kemper Value Fund
<PAGE>
Other Policies And Risks
While the previous pages describe the main points of each
fund's strategy and risks, there are a few other issues to
know about:
o Although major changes tend to be infrequent, each fund's
Board could change that fund's investment goal without
seeking shareholder approval.
o As a temporary defensive measure, Kemper-Dreman Financial
Services Fund, Kemper U.S. Growth And Income Fund and
Kemper Value Fund could shift up to 100% of assets, and
Kemper Contrarian Fund, Kemper-Dreman High Return Equity
Fund and Kemper Small Cap Value Fund could shift up to
50% of assets into investments such as money market
securities. This could prevent losses, but would mean
that the fund would not be pursuing its goal.
o These funds' equity investments are mainly common stocks,
but may also include other types of equities such as
preferred or convertible stocks.
Keep in mind that there is no assurance that any mutual
fund will achieve its goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, request a copy of the Statement of Additional
Information (see back cover).
38
<PAGE>
Euro conversion
Funds which invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is already underway. Scudder
Kemper is working to address euro-related issues as they occur and understands
that other key service providers are taking similar steps. Still, there's some
risk that this problem could materially affect a fund's operation (including its
ability to calculate net asset value and to handle purchases and redemptions),
its investments or securities markets in general.
39
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested.
This information has been audited by Ernst & Young LLP (except Kemper Value
Fund, which has been audited by PricewaterhouseCoopers LLP) whose reports, along
with each fund's financial statements, are included in the fund's annual report
(see "Shareholder reports" on the back cover).
Kemper Contrarian Fund
Class A
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(e)
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $22.90 $21.13 $16.93 $16.20 $12.18
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .34(a) .28 .23 .23 .26
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (1.40) 3.48 4.25 2.07 5.05
- ------------------------------------------------------------------------------
Total from investment
operations (1.06) 3.76 4.48 2.30 5.31
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.31) (.27) (.20) (.22) (.24)
- ------------------------------------------------------------------------------
Net realized gains on
investment transactions (1.78) (1.72) (.08) (1.35) (1.05)
- ------------------------------------------------------------------------------
Total distributions (2.09) (1.99) (.28) (1.57) (1.29)
- ------------------------------------------------------------------------------
Net asset value, end of period $19.75 $22.90 $21.13 $16.93 $16.20
- ------------------------------------------------------------------------------
Total return (%)(c) (5.06) 19.51 26.58** 14.42(b) 44.57
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($
millions) 173 152 101 47 19
- ------------------------------------------------------------------------------
Ratio of expenses, before
expense reductions (%) 1.41 1.37 1.35* 1.25 1.66
- ------------------------------------------------------------------------------
Ratio of expenses, after
expense reductions (%) 1.40 1.37 1.35* 1.23 1.25
- ------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) 1.53 1.36 1.47* 1.56 1.85
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the eleven months ended November 30, 1997.
(e) Years ended December 31.
* Annualized
** Not Annualized
40
<PAGE>
Class B
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $22.82 $21.08 $16.92 $16.20 $15.26
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .14(a) .08 .08 .11 .07
- --------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (1.38) 3.46 4.22 2.07 1.85
- --------------------------------------------------------------------------------
Total from investment
operations (1.24) 3.54 4.30 2.18 1.92
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.12) (.08) (.06) (.11) (.07)
- --------------------------------------------------------------------------------
Net realized gains on
investment transactions (1.78) (1.72) (.08) (1.35) (.91)
- --------------------------------------------------------------------------------
Total distributions (1.90) (1.80) (.14) (1.46) (.98)
- --------------------------------------------------------------------------------
Net asset value, end of period $19.68 $22.82 $21.08 $16.92 $16.20
- --------------------------------------------------------------------------------
Total return (%) (c) (5.90) 18.32 25.44** 13.61(b) 12.83(b)**
- --------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period
($ millions) 109 100 71 29 6
- --------------------------------------------------------------------------------
Ratio of expenses, before
expense reductions (%) 2.29 2.31 2.26* 2.34 2.36*
- --------------------------------------------------------------------------------
Ratio of expenses, after
expense reductions (%) 2.29 2.31 2.26* 2.11 2.00*
- --------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) .64 .42 .56* .68 .88*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30*
- --------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the eleven months ended November 30, 1997.
(e) Years ended December 31, 1996.
(f) For the period from September 11, 1995 (commencement of operations) to
December 31, 1995.
* Annualized
** Not Annualized
41
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- --------------------------------------------------------------------------------
Net asset value, beginning
of period $22.82 $21.06 $16.90 $16.20 $15.26
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income
(loss) .12(a) .05 .06 .11 .08
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investment transactions (1.39) 3.47 4.20 2.05 1.85
- --------------------------------------------------------------------------------
Total from investment
operations (1.27) 3.52 4.26 2.16 1.93
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.09) (.04) (.02) (.11) (.08)
- --------------------------------------------------------------------------------
Net realized gains on
investment transactions (1.78) (1.72) (.08) (1.35) (.91)
- --------------------------------------------------------------------------------
Total distributions (1.87) (1.76) (.10) (1.46) (.99)
- --------------------------------------------------------------------------------
Net asset value, end of
period $19.68 $22.82 $21.06 $16.90 $16.20
- --------------------------------------------------------------------------------
Total return (%) (c) (6.01) 18.25 25.26** 13.51 (b) 12.85 (b)**
- --------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period
($ millions) 18 12 6 2 .2
- --------------------------------------------------------------------------------
Ratio of expenses, before
expense reductions (%) 2.36 2.40 2.47* 2.80 2.31*
- --------------------------------------------------------------------------------
Ratio of expenses, after
expense reductions (%) 2.35 2.40 2.47* 2.12 1.95*
- --------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) .58 .33 .35* .67 .93*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the eleven months ended November 30, 1997.
(e) Years ended December 31, 1996.
(f) For the period from September 11, 1995 (commencement of operations) to
December 31, 1995.
* Annualized
** Not Annualized
42
<PAGE>
Kemper-Dreman Financial Services Fund
Class A
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.65 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (a) .13 .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .06 .12
- ------------------------------------------------------------------------------
Total from investment operations .19 .15
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.08) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------
Total distributions (.10) --
- ------------------------------------------------------------------------------
Net asset value, end of period $9.74 $9.65
- ------------------------------------------------------------------------------
Total return (%) (b)(c) 1.95 1.58**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 82,203 108,206
- ------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 1.44 1.55*
- ------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.31 1.36*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.27 .55*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the period from March 9, 1998 (commencement of operations) to November
30, 1998.
* Annualized
** Not Annualized
43
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.59 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (a) .04 (.01)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .05 .10
- ------------------------------------------------------------------------------
Total from investment operations .09 .09
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.01) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------
Total distributions (.03) --
- ------------------------------------------------------------------------------
Net asset value, end of period $9.65 $9.59
- ------------------------------------------------------------------------------
Total return (%) (b)(c) 1.08 .95**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 89,859 99,631
- ------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 2.22 2.29*
- ------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 2.20 2.14*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .38 (.23)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the period from March 9, 1998 (commencement of operations) to November
30, 1998.
* Annualized
** Not Annualized
44
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.61 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (a) .04 (.01)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .07 .12
- ------------------------------------------------------------------------------
Total from investment operations .11 .11
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.01) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------
Total distributions (.03) --
- ------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.61
- ------------------------------------------------------------------------------
Total return (%) (b)(c) 1.09 1.16**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 15,590 16,324
- ------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 2.16 2.26*
- ------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 2.14 2.11*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .44 (.20)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) For the period from March 9, 1998 (commencement of operations) to November
30, 1998.
* Annualized
** Not Annualized
45
<PAGE>
Kemper-Dreman High Return Equity Fund
Class A
- ------------------------------------------------------------------------------
Years ended
November 30, 1999 1998 1997(d) 1996(e) 1995(e) 1994(e)
- ------------------------------------------------------------------------------
Net asset value,
beginning of period $35.69 $33.52 $26.52 $21.49 $15.11 $15.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment
income (loss) 0.71(a) 0.73 0.54 0.39 0.26 0.25
- ------------------------------------------------------------------------------
Net realized and
unrealized
gain (loss) on
investment
transactions (3.69) 3.80 6.89 5.75 6.76 (0.39)
- ------------------------------------------------------------------------------
Total from
investment
operations (2.98) 4.53 7.43 6.14 7.02 (0.14)
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment
income (0.70) (0.86) (0.37) (0.38) (0.24) (0.25)
- ------------------------------------------------------------------------------
Net realized gains
on investment
transactions (1.56) (1.50) (0.06) (0.73) (0.40) --
- ------------------------------------------------------------------------------
Total distributions (2.26) (2.36) (0.43) (1.11) (0.64) (0.25)
- ------------------------------------------------------------------------------
Net asset value, end
of period $30.45 $35.69 $33.52 $26.52 $21.49 $15.11
- ------------------------------------------------------------------------------
Total return (%) (c) (8.88) 14.25 28.15** 28.79 46.86 (b) (.99)(b)
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 2,043 2,420 1,383 386 76 35
- ------------------------------------------------------------------------------
Ratio of expenses,
before expense
reductions (%) 1.20 1.19 1.22* 1.21 1.57 1.39
- ------------------------------------------------------------------------------
Ratio of expenses,
after expense
reductions (%) 1.20 1.19 1.22* 1.21 1.25 1.25
- ------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) 2.09 2.28 2.38* 2.12 1.55 1.58
- ------------------------------------------------------------------------------
Portfolio turnover
rate (%) 33 7 5* 10 18 12
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Years ended December 31.
* Annualized
** Not Annualized
46
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $35.51 $33.37 $26.44 $21.47 $19.45
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment
income (loss) 0.42(a) 0.45 0.31 0.19 0.07
- ------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investment
transactions (3.66) 3.75 6.84 5.72 2.41
- ------------------------------------------------------------------------------
Total from investment
operations (3.24) 4.20 7.15 5.91 2.48
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (0.40) (0.56) (0.16) (0.21) (0.06)
- ------------------------------------------------------------------------------
Net realized gains on
investment transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- ------------------------------------------------------------------------------
Total distributions (1.96) (2.06) (0.22) (0.94) (0.46)
- ------------------------------------------------------------------------------
Net asset value, end
of period $30.31 $35.51 $33.37 $26.44 $21.47
- ------------------------------------------------------------------------------
Total return (%) (c) (9.62) 13.22 27.10** 27.63(b) 12.88(b)**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ millions) 1,865 2,276 1,300 295 17
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.03 2.06 2.12* 2.31 2.35*
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.03 2.06 2.12* 2.20 2.00*
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 1.26 1.41 1.48* 1.13 0.61*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Year ended December 31.
(f) September 11 (commencement of operations) to December 1995.
* Annualized
** Not Annualized
47
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $35.54 $33.38 $26.45 $21.48 $19.45
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income
(loss) 0.43(a) 0.45 0.32 0.20 0.09
- ------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investment transactions (3.66) 3.79 6.83 5.72 2.41
- ------------------------------------------------------------------------------
Total from investment
operations (3.23) 4.24 7.15 5.92 2.50
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (0.41) (0.58) (0.16) (0.22) (0.07)
- ------------------------------------------------------------------------------
Net realized gains on
investment transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- ------------------------------------------------------------------------------
Total distributions (1.97) (2.08) (0.22) (0.95) (0.47)
- ------------------------------------------------------------------------------
Net asset value, end of
period $30.34 $35.54 $33.38 $26.45 $21.48
- ------------------------------------------------------------------------------
Total return (%) (c) (9.60) 13.32 27.10** 27.66(b) 12.94(b)**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ millions) 414 462 221 44 2
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.00 2.01 2.10* 2.33 2.30*
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.00 2.01 2.10* 2.22 1.95*
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 1.29 1.46 1.50* 1.11 0.66*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Year ended December 31.
(f) September 11 (commencement of operations) to December 1995.
* Annualized
** Not Annualized
48
<PAGE>
Kemper Small Cap Value Fund
Class A
- ------------------------------------------------------------------------------
Years ended November
30, 1999 1998 1997(d) 1996(e) 1995(e) 1994(e)
- ------------------------------------------------------------------------------
Net asset value,
beginning of period $17.80 $21.83 $18.28 $14.50 $10.85 $11.23
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment
income (loss) .04(a) .06 .05 .14(a) (.02) --
- ------------------------------------------------------------------------------
Net realized and
unrealized
gain (loss) on
investment
transactions (.09) (3.39) 3.50 4.14 4.64 .02
- ------------------------------------------------------------------------------
Total from
investment
operations (.05) (3.33) 3.55 4.28 4.62 .02
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net
investment income -- -- -- (.07) -- --
- ------------------------------------------------------------------------------
Net realized gain
on investment
transactions -- (.70) -- (.43) (.97) (.40)
- ------------------------------------------------------------------------------
Total distributions -- (.70) -- (.50) (.97) (.40)
- ------------------------------------------------------------------------------
Net asset value, end
of period $17.75 $17.80 $21.83 $18.28 $14.50 $10.85
- ------------------------------------------------------------------------------
Total return (%) (c) (.28) (15.69) 19.42** 29.60(b) 43.29(b) .15(b)
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of
period
($ in thousands) 296,864 489,734 736,412 144,812 20,684 6,931
- ------------------------------------------------------------------------------
Ratio of expenses,
before expense
reductions (%) 1.52 1.42 1.32* 1.47 1.83 1.82
- ------------------------------------------------------------------------------
Ratio of expenses,
after expense
reductions (%) 1.52 1.42 1.32* 1.31 1.25 1.25
- ------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) .21 .25 .51* .87 (.16) (.03)
- ------------------------------------------------------------------------------
Portfolio turnover
rate (%) 47 5 0 83* 23 86 140
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Years ended December 31.
* Annualized
** Not Annualized
49
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $17.33 $21.46 $18.14 $14.48 $15.75
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income
(loss) (.11)(a) (.12) (.04) .01(a) (.02)
- ------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investment transactions (.07) (3.31) 3.36 4.11 (.41)
- ------------------------------------------------------------------------------
Total from investment
operations (.18) (3.43) 3.32 4.12 (.43)
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income -- -- -- (.03) --
- ------------------------------------------------------------------------------
Net realized gain on
investment transactions -- (.70) -- (.43) (.84)
- ------------------------------------------------------------------------------
Total distributions -- (.70) -- (.46) (.84)
- ------------------------------------------------------------------------------
Net asset value, end
of period $17.15 $17.33 $21.46 $18.14 $14.48
- ------------------------------------------------------------------------------
Total return (%) (c) (1.04) (16.45) 18.30** 28.54(b) (2.52)**(b)
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 261,953 390,043 412,479 99,355 8,072
- ------------------------------------------------------------------------------
Ratio of expenses, before
expense reductions (%) 2.36 2.34 2.34* 2.49 2.39*
- ------------------------------------------------------------------------------
Ratio of expenses, after
expense reductions (%) 2.36 2.34 2.34* 2.12 2.00*
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) (.63) (.67) (.51) .06 (.99)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86*
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Year ended December 31, 1996.
(f) For the period September 11 (commencement of operations) to December 31,
1995.
* Annualized
** Not Annualized
50
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997(d) 1996(e) 1995(f)
- --------------------------------------------------------------------------------
Net asset value, beginning
of period $17.39 $21.51 $18.17 $14.48 $15.75
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income
(loss) (.09)(a) (.12) (.03) .01(a) (.02)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investment transactions (.06) (3.30) 3.37 4.14 (.41)
- --------------------------------------------------------------------------------
Total from investment
operations (.15) (3.42) 3.34 4.15 (.43)
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income -- -- -- (.03) --
- --------------------------------------------------------------------------------
Ne t realized gains on
investment transactions -- (.70) -- (.43) (.84)
- --------------------------------------------------------------------------------
Total distributions -- (.70) -- (.46) (.84)
- --------------------------------------------------------------------------------
Net asset value, end
of period $17.24 $17.39 $21.51 $18.17 $14.48
- --------------------------------------------------------------------------------
Total return (%) (c) (.86) (16.37) 18.38** 28.77(b) (2.51)**(b)
- --------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 57,420 91,473 99,526 20,054 985
- --------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.25 2.28 2.24* 2.19 2.35*
- --------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.25 2.28 2.24* 2.06 1.95*
- --------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) (.52) (.61) (.41)* .12 (.94)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
(d) Eleven months ended November 30, 1997.
(e) Year ended December 31, 1996.
(f) For the period September 11 (commencement of operations) to December
31, 1995.
51
<PAGE>
Kemper U.S. Growth And Income Fund
Class A
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.12 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .13 .07
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .86 (.38)
- ------------------------------------------------------------------------------
Total from investment operations .99 (.31)
- ------------------------------------------------------------------------------
Less distribution from net investment income .12 .07
- ------------------------------------------------------------------------------
Net asset value, end of period $9.99 $9.12
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 10.87 (3.36)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.24 1.36
- ------------------------------------------------------------------------------
Net investment income (loss) (%) 1.29 1.56
- ------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.10 2.59
- ------------------------------------------------------------------------------
Net investment income (loss) .42 .33
- ------------------------------------------------------------------------------
(a) For the period from January 30, 1998 to September 30, 1998.
52
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.12 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .05 .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .86 (.38)
- ------------------------------------------------------------------------------
Total from investment operations .91 (.35)
- ------------------------------------------------------------------------------
Less distribution from net investment income .05 .03
- ------------------------------------------------------------------------------
Net asset value, end of period $9.98 $9.12
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 9.96 (3.72)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.01 2.01
- ------------------------------------------------------------------------------
Net investment income (loss) (%) .52 .91
- ------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.97 3.49
- ------------------------------------------------------------------------------
Net investment income (loss) (.45) (.57)
- ------------------------------------------------------------------------------
(a) For the period from January 30, 1998 to September 30, 1998.
53
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $9.12 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .06 .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .84 (.38)
- ------------------------------------------------------------------------------
Total from investment operations .90 (.35)
- ------------------------------------------------------------------------------
Less distribution from net investment income .05 .03
- ------------------------------------------------------------------------------
Net asset value, end of period $9.97 $9.12
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 9.88 (3.71)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.99 1.99
- ------------------------------------------------------------------------------
Net investment income (loss) (%) .54 .93
- ------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.78 3.25
- ------------------------------------------------------------------------------
Net investment income (loss) (.26) (.33)
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended 1999(b) 1998(c)
- ------------------------------------------------------------------------------
Net assets at end of period (in thousands) $34,485 $18,563
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 74 93
- ------------------------------------------------------------------------------
(a) For the period from January 30, 1998 to September 30, 1998.
(b) Six months ended March 31, 1999.
(c) Period ended September 30, 1998.
Total returns do not reflect the effect of any sales charges. Scudder Kemper
agreed to temporarily waive certain operating expenses of the fund during the
year ended September 30, 1999. The "Other Ratios to Average Net Assets" are
computed without this waiver.
Per share data was determined based on average shares outstanding during the
year ended September 30, 1999.
54
<PAGE>
Kemper Value Fund
Class A
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $21.19 $25.42
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .15 .07
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.62 (4.30)
- ------------------------------------------------------------------------------
Total from investment operations 2.77 (4.23)
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.17) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.90) --
- ------------------------------------------------------------------------------
Total distributions (1.07) --
- ------------------------------------------------------------------------------
Net asset value, end of period $22.89 $21.19
- ------------------------------------------------------------------------------
Total return (%) (b) 13.04(c) (16.64)**
- ------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 42 28
- ------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 1.41 1.34*
- ------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets 1.57 1.34
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) .61 .86*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 91 47
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
(d) For the period April 16, 1998 (commencement of sale of Class A shares) to
September 30, 1998.
* Annualized
** Not annualized
55
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $21.11 $25.42
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.07) --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.62 (4.31)
- ------------------------------------------------------------------------------
Total from investment operations 2.55 (4.31)
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.04) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.90) --
- ------------------------------------------------------------------------------
Total distributions (.94) --
- ------------------------------------------------------------------------------
Net asset value, end of period $22.72 $21.11
- ------------------------------------------------------------------------------
Total return (%) (b) 12.02(c) (16.96)**
- ------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 29 18
- ------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 2.29 2.12*
- ------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets 2.34 2.12
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) (.27) .03*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 91 47
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
(d) For the period April 16, 1998 (commencement of sale of Class B shares) to
September 30, 1998.
* Annualized
** Not annualized
56
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended September 30, 1999 1998(d)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $21.13 $25.42
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.05) .01
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.61 (4.30)
- ------------------------------------------------------------------------------
Total from investment operations 2.56 (4.29)
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.04) --
- ------------------------------------------------------------------------------
Net realized gains on investment transactions (.90) --
- ------------------------------------------------------------------------------
Total distributions (.94) --
- ------------------------------------------------------------------------------
Net asset value, end of period $22.75 $21.13
- ------------------------------------------------------------------------------
Total return (%) (b) 12.06(c) (16.88)**
- ------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 5 3
- ------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 2.26 2.11*
- ------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets 2.34 2.11
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily net
assets (%) (.22) .08*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 91 47
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
(d) For the period April 16, 1998 (commencement of sale of Class C shares) to
September 30, 1998.
* Annualized
** Not annualized
57
<PAGE>
Investing In The Funds
The following pages tell you about many of the services, choices and benefits of
being a Kemper Funds shareholder. You'll also find information on how to check
the status of your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.
<PAGE>
Choosing A Share Class
In this prospectus, there are three share classes for each fund. The Kemper
Value Fund offers a fourth class of shares separately. Each class has its own
fees and expenses, offering you a choice of cost structures.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
- --------------------------------------------------------------------------------
Classes and features Points to help you compare
- --------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see next page
o In most cases, no charges when you
sell shares o Total annual operating expenses
are lower than those for Class B
o No distribution fee or Class C
- ------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate
falls to zero after six years
o Deferred sales charge of up to
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A after six years, which
means lower annual expenses going
o 0.75% distribution fee forward
- ------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never
o Deferred sales charge of 1.00%, convert to Class A, so annual
charged when you sell shares you expenses remain higher
bought within the last year
o 0.75% distribution fee
- ------------------------------------------------------------------------------
59
<PAGE>
Class A shares
Class A shares have a sales charge that varies with the amount you invest:
Sales charge Sales charge
as a % of as a % of your
Your investment offering price net investment*
- ---------------------------------------------------------
Up to $50,000 5.75% 6.10%
- ---------------------------------------------------------
$50,000-$99,999 4.50 4.71
- ---------------------------------------------------------
$100,000-$249,999 3.50 3.63
- ---------------------------------------------------------
$250,000-$499,999 2.60 2.67
- ---------------------------------------------------------
$500,000-$999,999 2.00 2.04
- ---------------------------------------------------------
$1 million or more See below and next page
- ---------------------------------------------------------
* Rounded to the nearest one-hundredth percent.
The offering price includes the sales charge.
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 over the next 24
months ("letter of intent")
o the amount of Kemper shares you already own (including
shares in certain other Kemper funds) plus the amount
you're investing now is at least $50,000 ("cumulative
discount")
o you are investing a total of $50,000 or more in several
Kemper funds at once ("combined purchases")
The point of these three features is to let you count
investments made at other times for purposes of calculating
your present sales charge. Any time you can use the
privileges to "move" your investment into a lower sales
charge category in the table above, it's generally
beneficial for you to do so. You can take advantage of
these methods by filling in the appropriate sections of
your application or by speaking with your financial
representative.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class A shares may make sense for long-term investors, especially those
who are eligible for reduced or eliminated sales charges.
60
<PAGE>
You may be able to buy Class A shares without sales charges
when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under
which you pay a fee to an investment advisor or other
firm for portfolio management services
There are a number of additional provisions that apply in
order to be eligible for a sales charge waiver. The fund
may waive the sales charges for investors in other
situations as well. Your financial representative or Kemper
can answer your questions and help you determine if you are
eligible.
If you're investing $1 million or more, either as a lump
sum or through one of the sales charge reduction features
described on the previous page, you may be eligible to buy
Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00%
on any shares you sell within the first year of owning
them, and a similar charge of 0.50% on shares you sell
within the second year of owning them ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain
circumstances (see "Policies You Should Know About"). Your
financial representative or Kemper can answer your
questions and help you determine if you're eligible.
61
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to
the fund. Class B shares do have a 12b-1 plan, under which
a distribution fee of 0.75% is deducted from fund assets
each year. This means the annual expenses for Class B
shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares, which
don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the net effect
of lowering the annual expenses from the seventh year on.
Class B shares have a CDSC. This charge declines over the
years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within
those six years, you may be charged as follows:
Year after you bought shares CDSC on shares you sell
- -----------------------------------------------------------
First year 4.00%
- -----------------------------------------------------------
Second or third year 3.00
- -----------------------------------------------------------
Fourth or fifth year 2.00
- -----------------------------------------------------------
Sixth year 1.00
- -----------------------------------------------------------
Seventh year and later None (automatic conversion
to Class A)
- -----------------------------------------------------------
This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help
you determine if you're eligible.
While Class B shares don't have any front-end sales
charges, their higher annual expenses (due to 12b-1 fees)
mean that over the years you could end up paying more than
the equivalent of the maximum allowable front-end sales
charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class B shares can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses in exchange.
62
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales
charges and have a 12b-1 plan under which a distribution
fee of 0.75% is deducted from fund assets each year.
Because of this fee, the annual expenses for Class C shares
are similar to those of Class B shares, but higher than
those for Class A shares (and the performance of Class C
shares is correspondingly lower than that of Class A).
Unlike Class B shares, Class C shares do NOT automatically
convert to Class A after six years, so they continue to
have higher annual expenses.
Class C shares have a CDSC, but only on shares you sell
within one year of buying them:
Year after you bought shares CDSC on shares you sell
- ----------------------------------------------------------
First year 1.00%
- ----------------------------------------------------------
Second year and later None
- ----------------------------------------------------------
This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help
you determine if you're eligible.
While Class C shares don't have any front-end sales
charges, their higher annual expenses (due to 12b-1 fees)
mean that over the years you could end up paying more than
the equivalent of the maximum allowable front-end sales
charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
63
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- --------------------------------------------------------------------------------
First investment Additional investments
- --------------------------------------------------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
the method that's most convenient the method that's most convenient
for you for you
- ------------------------------------------------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter
with your name, account number,
the full name of the fund and the
share class and your investment
instructions
- ------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for
instructions
- ------------------------------------------------------------------------------
By phone
-- o Call (800) 621-1048 for
instructions
- ------------------------------------------------------------------------------
With an automatic investment plan
-- o To set up regular investments,
call (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
64
<PAGE>
How to Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- --------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- --------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most
for over $50,000, can only be
$100 or more for exchanges between ordered in writing with a signature
existing accounts guarantee; if you're in doubt, see
page 68
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient for the method that's most convenient
you for you
- ------------------------------------------------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for
instructions
- ------------------------------------------------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number o the fund, class and account
you're exchanging out of number from which you want to
sell shares
o the dollar amount or number of
shares you want to exchange o the dollar amount or number of
shares you want to sell
o the name and class of the fund you
want to exchange into o your name(s), signature(s) and
address, as they appear on your
o your name(s), signature(s) and account
address, as they appear on your
account o a daytime telephone number
o a daytime telephone number
- ------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments
Kemper fund account, call from a Kemper fund account, call
(800) 621-1048 (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
65
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the
policies below may affect you as a shareholder.
If you are investing through an investment provider, check
the materials you received from them. As a general rule,
you should follow the information in those materials
wherever it contradicts the information given here.
Please note that an investment provider may charge its own
fees.
Policies about transactions
The funds are open for business each day the New York Stock
Exchange is open. Each fund calculates its share price
every business day, as of the close of regular trading on
the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time.
Once your order is received by Kemper Service Company, and
it has determined that it is a "good order," it will be
processed at the next share price calculated.
Because orders placed through investment providers must be
forwarded to Kemper Service Company before they can be
processed, you'll need to allow extra time. A
representative of your investment provider should be able
to tell you when your order will be processed.
KemperACCESS, the Kemper Automated Information Line, is
available 24 hours a day by calling (800) 972-3060. You can
use Kemper ACCESS to get information on Kemper funds
generally and on accounts held directly at Kemper. You can
also use it to make exchanges and sell shares.
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EXPRESS-Transfer lets you set up a link between a Kemper
account and a bank account. Once this link is in place, you
can move money between the two with a phone call. You'll
need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be
completed, and there is a $100 minimum. To set up
EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800)
621-1048.
Share certificates are available on written request.
However, we don't recommend them unless you want them for a
specific purpose, because they can only be sold by mailing
them in, and if they're ever lost they're difficult and
expensive to replace.
When you call us to sell shares, we may record the call,
ask you for certain information or take other steps
designed to prevent fraudulent orders. It's important to
understand that, as long as we take reasonable steps to
ensure that an order appears genuine, we are not
responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that
while we don't charge a fee to send or receive wires, it's
possible that your bank may do so. Wire transactions are
normally completed within 24 hours. The funds can only send
or accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most
shareholders. Exchanges are a shareholder privilege, not a
right: we may reject any exchange order, particularly when
there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit
purchase orders, for these or other reasons.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www. kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
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When you want to sell more than $50,000 worth of shares, or
send the proceeds to a third party or to a new address,
you'll usually need to place your order in writing and
include a signature guarantee. The only exception is if you
want money wired to a bank account that is already on file
with us; in that case, you don't need a signature
guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other
circumstances.
A signature guarantee is simply a certification of your
signature -- a valuable safeguard against fraud. You can
get a signature guarantee from most brokers, banks, savings
institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a CDSC, we calculate the
CDSC as a percentage of what you paid for the shares or
what you are selling them for -- whichever results in the
lowest charge to you. In processing orders to sell shares,
we turn to the shares with the lowest CDSC first. Exchanges
from one Kemper fund into another don't affect CDSCs: for
each investment you make, the date you first bought Kemper
shares is the date we use to calculate a CDSC on that
particular investment.
There are certain cases in which you may be exempt from a
CDSC. These include:
o the death or disability of an account owner (including a
joint owner)
o withdrawals made through a systematic withdrawal plan.
Such withdrawals may be made at a maximum of 10% per year
of the net asset value of the account
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship
provisions or returns of excess contributions from
retirement plans
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
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In each of these cases, there are a number of additional
provisions that apply in order to be eligible for a CDSC
waiver. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to
invest with Kemper again within six months, you can take of
advantage of the "reinstatement feature." With this
feature, you can put your money back into the same class of
a Kemper fund at its current NAV and for purposes of sales
charges it will be treated as if it had never left Kemper.
You'll also be reimbursed (in the form of fund shares) for
any CDSC you paid when you sold your shares. Future CDSC
calculations will be based on your original investment
date, rather than your reinstatement date. There is also an
option that lets investors who sold Class B shares buy
Class A shares with no sales charge, although they won't be
reimbursed for any CDSC they paid. You can only use the
reinstatement feature once for any given group of shares.
To take advantage of this feature, contact Kemper or your
financial representative.
Money from shares you sell is normally sent out within one
business day of when your order is received in proper form,
although it could be delayed for up to seven days. There
are also two circumstances when it could be longer: when
you are selling shares you bought recently by check and
that check hasn't cleared yet (maximum delay: 10 days) or
when unusual circumstances prompt the SEC to allow further
delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.
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How the funds calculate share price
For each fund in this prospectus, the price at which you
buy shares is as follows:
Class A shares -- net asset value per share, or NAV,
adjusted to allow for any applicable sales charges (see
"Choosing A Share Class")
Class B and Class C shares -- net asset value per share, or NAV
To calculate NAV, each share class of each fund uses the
following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------ = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each fund and share class in this prospectus, the price
at which you sell shares is also the NAV, although a
contingent deferred sales charge may be taken out of the
proceeds (see "Choosing A Share Class").
We typically use market prices to value securities.
However, when a market price isn't available, or when we
have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a
fund's Board. In such a case, the fund's value for a
security is likely to be different from quoted market
prices.
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Other rights we reserve
For each fund in this prospectus, you should be aware that
we may do any of the following:
o withhold 31% of your distributions as federal income tax
if we have been notified by the IRS that you are subject
to backup withholding, or if you fail to provide us with
a correct taxpayer ID number or certification that you
are exempt from backup withholding
o reject a new account application if you don't
provide a correct Social Security or other tax ID number;
if the account has already been opened, we may give you
30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account
balance is below $1,000 for the entire quarter; this
policy doesn't apply to most retirement accounts or if
you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that
is, by giving you marketable securities (which typically
will involve brokerage costs for you to liquidate) rather
than cash
o change, add or withdraw various services, fees and
account policies (for example, we may change or terminate
the exchange privilege at any time)
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Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can
earn money in two ways: by receiving interest, dividends or
other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's
earnings are separate from any gains or losses stemming
from your own purchase of shares.) A fund may not always
pay a distribution for a given period.
Each fund intends to pay dividends and distributions to its
shareholders in December, and if necessary may do so at
times as needed.
You can choose how to receive your dividends and
distributions. You can have them all automatically
reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you
by check or have them invested in a different fund. Tell us
your preference on your application. If you don't indicate
a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax
consequences for you (except in an IRA or other
tax-advantaged account). Your sales of shares may result in
a capital gain or loss for you; whether long-term or
short-term depends on how long you owned the shares. For
tax purposes, an exchange is the same as a sale.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Because each shareholder's tax situation is unique, ask your tax professional
about the tax consequences of your investments, including any state and local
tax consequences.
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The tax status of the fund earnings you receive, and your
own fund transactions, generally depends on their type:
Generally taxed at ordinary income rates
- -------------------------------------------------------
o short-term capital gains from selling fund shares
- -------------------------------------------------------
o income dividends you receive from a fund
- -------------------------------------------------------
o short-term capital gains distributions received from a
fund
Generally taxed at capital gains rates
- -------------------------------------------------------
o long-term capital gains from selling fund shares
- -------------------------------------------------------
o long-term capital gains distributions received from a
fund
- -------------------------------------------------------
Your fund will send you detailed tax information every
January. These statements tell you the amount and the tax
category of any dividends or distributions you received.
They also have certain details on your purchases and sales
of shares. The tax status of dividends and distributions is
the same whether you reinvest them or not. Dividends or
distributions declared in the last quarter of a given year
are taxed in that year, even though you may not receive the
money until the following January.
If you invest right before the fund pays a dividend, you'll
be getting some of your investment back as a taxable
dividend. You can avoid this, if you want, by investing
after the fund declares a dividend. In tax-advantaged
retirement accounts you don't need to worry about this.
Corporations may be able to take a dividends-received
deduction for a portion of income dividends they receive.
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Notes
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Notes
<PAGE>
Notes
<PAGE>
Notes
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To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we may mail one copy per
household. For more copies, call (800) 621-1048.
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Kemper or the SEC (see below). Materials you
get from Kemper are free; those from the SEC involve a copying fee. If you like,
you can look over these materials in person at the SEC's Public Reference Room
in Washington, DC.
SEC
450 Fifth Street, N.W.
Washington, DC 20549-6009
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048
- --------------------------------------------------------------------------------
SEC File Numbers
Kemper Contrarian Fund 811-5385
Kemper-Dreman Financial Services Fund 811-08599
Kemper-Dreman High Return Equity Fund 811-5385
Kemper Small Cap Value Fund 811-5385
Kemper U.S. Growth And Income Fund 811-08393
Value Fund 811-1444
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[LOGO] KEMPER FUNDS
Long-term investing in a short-term world(SM)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
Kemper Equity Trust
Kemper-Dreman Financial Services Fund ("Financial Services
Fund")
Kemper Securities Trust
Kemper Small Cap Relative Value Fund ("Small Cap Relative
Value Fund")
Kemper U.S. Growth and Income Fund ("U.S. Growth and Income
Fund")
Kemper Value Series, Inc.
Kemper Contrarian Fund ("Contrarian Fund")
Kemper-Dreman High Return Equity Fund ("High Return Equity
Fund")
Kemper Small Cap Value Fund ("Small Cap Value Fund")
Value Equity Trust
Kemper Value Fund ("Value Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS........................................................2
INVESTMENT POLICIES AND TECHNIQUES.............................................4
PORTFOLIO TRANSACTIONS........................................................18
INVESTMENT MANAGER AND UNDERWRITER...........................................20
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES.................................31
NET ASSET VALUE...............................................................43
DIVIDENDS AND TAXES...........................................................44
PERFORMANCE...................................................................49
OFFICERS AND BOARD MEMBERS....................................................52
SHAREHOLDER RIGHTS............................................................59
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the combined prospectus of the
Funds dated February 1, 2000. The prospectus may be obtained without charge from
the Funds by calling the number listed above or the firm from which the
prospectus was obtained and is also available along with other related materials
on the SEC's Internet web site (http://www.sec.gov). The Funds' Annual Reports
dated September 30 for the Small Cap Relative Value Fund, U.S. Growth and Income
Fund and Kemper Value Fund, November 30 for the Contrarian Fund, Financial
Services Fund, High Return Equity Fund and Small Cap Value Fund are incorporated
by reference into and are hereby deemed to be a part of this Statement of
Additional Information, and may be obtained by calling 1-800-621-1048.
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of the vote of (a) 67% of the shares of the Fund present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy or (b) more than 50% of the outstanding shares of the Fund.
Each Fund other than the Financial Services Fund has elected to be classified as
a diversified series of an open-end investment company; the Financial Services
Fund has elected to be classified as a non-diversified series of an open-end
investment company.
A Fund may not, as a fundamental policy:
1. Borrow money, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
2. Issue senior securities, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
3. Concentrate its investments in a particular industry, as that term is used
in the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
4. Make loans except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investment secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate as acquired as a result of the
Fund's ownership of securities.
6. Purchase physical commodities or contracts relating to physical
commodities.
7. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. Each Fund has
adopted the following non-fundamental restrictions, which may be changed by the
Board without shareholder approval.
With regard to Item 5 for Financial Services Fund, to the extent the Fund holds
real estate acquired as a result of the Fund's ownership of securities, such
holdings would be subject to the Fund's non-fundamental investment restriction
on illiquid securities.
Engage in the business of underwriting securities issued by others, except to
the extent that a Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
The Contrarian Fund, High Return Equity Fund, and Small Cap Value Fund may not,
as a non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. 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.
3. Mortgage, pledge, or hypothecate any assets except in connection with
borrowings in amounts not in excess of the lesser of the amount borrowed or
10% of the value of its total assets at the time of such borrowing;
provided that the Funds may enter into futures contracts and related
options. Optioned securities are not considered to be pledged for purposes
of this limitation.
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.
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5. Invest in oil, gas or mineral exploration or development programs.
6. Purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
7. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit.
The Financial Services Fund may not, as a non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest more than 15% of the value of its net assets in illiquid securities.
3. Purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
4. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit.
The Small Cap Relative Value Fund may not, as a non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest more than 15% of the value of its net assets in illiquid securities.
3. Mortgage, pledge or hypothecate any assets except in connection with
borrowings or in connection with options and futures contracts.
4. 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.
5. Purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
6. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit.
The U.S. Growth and Income Fund and Value Fund may not, as a non-fundamental
policy:
1. Borrow money in an amount greater than 5% of its total assets, except (i)
for temporary or emergency purposes and (ii) by engaging in reverse
repurchase agreements, dollar rolls, or other investments or transactions
described in the Fund's registration statement which may be deemed to be
borrowings;
2. Enter into either of reverse repurchase agreements or dollar rolls in an
amount greater than 5% of its total assets;
3. Purchase securities on margin or make short sales, except (i) short sales
against the box, (ii) in connection with arbitrage transactions, (iii) for
margin deposits in connection with futures contracts, options or other
permitted investments, (iv)
3
<PAGE>
that transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may obtain such
short-term credits as may be necessary for the clearance of securities
transactions;
4. Purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets;
5. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit;
6. Purchase warrants if as a result, such securities, taken at the lower of
cost or market value, would represent more than 5% of the value of the
Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value); and
7. Lend portfolio securities in an amount greater than 30% of its total
assets.
8. Purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
9. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
General.
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 Advisor deems it appropriate, each of Contrarian Fund, High Return Equity
Fund, Small Cap Relative Value Fund and Small Cap Value Fund, may invest up to
50% of its assets, and each of Financial Services Fund, U.S. Growth and Income
Fund and Value Fund may invest up to 100% of its assets in cash or
defensive-type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements. Investments in such interest-bearing securities
will be for temporary defensive purposes only.
Common Stocks. Each Fund may invest in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, a Fund participates in the success
or failure of any company in which it holds stock. The market values of common
stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market
movements. Smaller companies are especially sensitive to these factors. An
investment in common stock entails greater risk of becoming valueless than does
an investment in fixed-income securities. Despite the risk of price volatility,
however, common stock also offers the greatest potential for long-term gain on
investment, compared to other classes of financial assets such as bonds or cash
equivalents.
Convertible Securities. Each Fund may invest in convertible securities which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which a Fund may invest include bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than
4
<PAGE>
nonconvertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
generally entail less credit risk than the issuer's common stock.
Repurchase Agreements. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund might
have expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying securities and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon. In addition, the Fund must take physical possession of the security or
receive written confirmation of the purchase and a custodial or safekeeping
receipt from a third party or be recorded as the owner of the security through
the Federal Reserve Book-Entry System. Repurchase agreements will be limited to
transactions with financial institutions believed by the Advisor to present
minimal credit risk (for the U.S. Growth and Income Fund, those determined by
the Advisor to be at least as high in credit quality as that of other
obligations the Fund may purchase or to be at least equal to that of issuers of
commercial paper rated within the two highest grades assigned by Moody's
Investor Services, Inc. ("Moody's") or Standard & Poor's Ratings Services
("S&P"). The Advisor will monitor on an on-going basis the creditworthiness of
the broker-dealers and banks with which the Funds may engage in repurchase
agreements. Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of each Fund's limitation on illiquid
securities.
Foreign Securities. Contrarian Fund, High Return Equity Fund, Financial Services
Fund , Small Cap Relative Value Fund and Small Cao Value Fund each invests
primarily in securities that are publicly traded in the United States; but, has
discretion to invest a portion of its assets in foreign securities that are
traded principally in securities markets outside the United States. Contrarian
Fund, High Return Equity Fund , Small Cap Relative Value Fund and Small Cap
Value Fund each may invest up to 20% of assets in securities of foreign
companies through the acquisition of American Depository Receipts ("ADRs"),
which are bought and sold in the United States as well as through the purchase
of securities of foreign companies that are publicly traded in the United States
and the purchase of securities of foreign companies that are traded principally
in securities markets outside the United States. Financial Services Fund may
invest up to 30% of its total assets in foreign securities. In connection with
its foreign securities investments, each Fund may, to a limited extent, engage
in foreign currency exchange, options and futures transactions as a hedge and
not for speculation. Additional information concerning foreign securities and
related techniques is contained under "Additional Investment Information."
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect a Fund's performance. As foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Many foreign stock markets, while growing in volume of
trading activity, have substantially less volume than the New York Stock
Exchange (the "Exchange") and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
settlement problems could cause a Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems either could result in losses to the Fund due to subsequent declines in
value of the portfolio security or, if a Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges although a Fund will endeavor to achieve the most
favorable net results on their portfolio transactions. Further, a Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the U.S. It may be more difficult for a Fund's agents
to keep currently informed about corporate actions such as stock dividends or
other matters which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S. thereby increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Delivery of
securities without payment is required in
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some foreign markets. In addition, with respect to certain foreign countries,
there is the possibility of nationalization, expropriation, the imposition of
withholding or confiscatory taxes, political, social, or economic instability,
or diplomatic developments which could affect U.S. investments in those
countries. Investments in foreign securities may also entail certain risks, such
as possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self'-sufficiency and balance of payments position.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in those countries than in developed
countries. The management of each Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, a Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Advisor, are
speculative.
Investments in foreign securities usually will involve currencies of foreign
countries. Moreover, a Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs and the value of
the assets for a Fund, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Fund may incur costs in connection with conversions between
various currencies. Although a Fund values its assets daily in terms of U.S.
dollars, a Fund does not intend to convert its holdings of foreign currencies,
if any, into U.S. dollars on a daily basis. A Fund may do so from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should a Fund desire to resell that currency to the dealer. A Fund will conduct
its foreign currency exchange transactions, if any, either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market
or through forward foreign currency exchange contracts.
To the extent that a Fund invests in foreign securities, a Fund's share price
could reflect the movements of both the different stock and bond markets in
which it is invested and the currencies in which the investments are
denominated: the strength or weakness of the U.S. dollar against foreign
currencies could account for part of a Fund's investment performance.
Emerging Markets. While Contrarian Fund's, High Return Equity Fund's, Small Cap
Relative Value Fund's and Small Cap Value Fund's investments in foreign
securities will be principally in developed countries, each Fund may make
investments in developing or "emerging" countries, which involve exposure to
economic structures that are generally less diverse and mature than in the
United States, and to political systems that may be less stable. A developing or
emerging market country can be considered to be a country that is in the initial
stages of its industrialization cycle. Currently, emerging markets generally
include every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for a Fund's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop, a
Fund may expand and further broaden the group of emerging markets in which it
invests. In the past, markets of developing or emerging market countries have
been more volatile than the markets of developed countries; however, such
markets often have provided higher rates of return to investors. The Advisor
believes that these characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade. Also, the securities markets of developing countries
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are substantially smaller, less developed, less liquid and more volatile than
the securities markets of the United States and other more developed countries.
Disclosure, regulatory and accounting standards in many respects are less
stringent than in the United States and other developed markets. There also may
be a lower level of monitoring and regulation of developing markets and the
activities of investors in such markets, and enforcement of existing regulations
has been extremely limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Certain emerging
markets may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose the Fund to the risk of losses resulting from a Fund's
inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. At such times a Fund's portfolio
securities in the affected markets will be valued at fair value determined in
good faith by or under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Fund's investments in the
securities of privatized enterprises may include privately negotiated
investments in a government- or state-owned or controlled company or enterprise
that has not yet conducted an initial equity offering, investments in the
initial offering of equity securities of a state enterprise or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatization will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
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Depository Receipts. Each Fund except for Financial Services Fund (which may
invest up to 30% in such securities), U.S. Growth and Income Fund and Value Fund
may invest up to 20% of its assets in securities of foreign companies through
the acquisition of American Depository Receipts ("ADRs") as well as through the
purchase of securities of foreign companies that are publicly traded in the
United States and,the purchase of foreign companies that are traded principally
in securities markets outside the United States. ADRs are bought and sold in the
United States and are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in the domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers, such as changes in foreign currency exchange
rates. However, by investing in ADRs rather than directly in foreign issuers'
stock, the Fund avoids currency risks during the settlement period. In general,
there is a large, liquid market in the United States for most ADRs.
Borrowing. Each Fund other than U.S. Growth and Income, Small Cap Relative Value
and Financial Services Fund is authorized to borrow from banks in amounts not in
excess of 10% of their respective total assets (U.S. Growth and Income is
authorized to borrow from banks in amounts not in excess of 5% of its total
assets, Small Cap Relative Value Fund is authorized to borrow from banks in
amounts not in excess of one-third (1/3) of its total assets and Financial
Services Fund is not authorized to borrow money in an amount greater than 5% of
its total assets, except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Fund's registration statement which may be deemed
to be borrowings), although they do not presently intend to do so. If, in the
future, they do borrow from banks, they would not purchase additional securities
at any time when such borrowings exceed 5% of their respective net assets.
Small Cap Securities. Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the Small Cap Value Fund and the Small Cap Relative Value Fund
may be more volatile than the shares of a fund that invests in larger
capitalization stocks.
Real Estate Investment Trusts. REITs are sometimes informally characterized as
equity REITs, mortgage REITs and hybrid REITs. Investment in REITs may subject
the Fund to risks associated with the direct ownership of real estate, such as
decreases in real estate values, overbuilding, increased competition and other
risks related to local or general economic conditions, increases in operating
costs and property taxes, changes in zoning laws, casualty or condemnation
losses, possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund's investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold
mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code"), and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
Investment Company Securities. Each Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
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For example, a Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index or a specific
portion of an index. Accordingly, the main risk of investing in index-based
investments is the same as investing in a portfolio of equity securities
comprising the index. The market prices of index-based investments will
fluctuate in accordance with both changes in the market value of their
underlying portfolio securities and due to supply and demand for the instruments
on the exchanges on which they are traded (which may result in their trading at
a discount or premium to their NAVs). Index-based investments may not replicate
exactly the performance of their specified index because of transaction costs
and because of the temporary unavailability of certain component securities of
the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Debt Securities. A Fund may invest in debt securities with varying degrees of
credit quality. High quality bonds (rated AAA or AA by S&P or Aaa or Aa by
Moody's) characteristically have a strong capacity to pay interest and repay
principal. Medium investment-grade bonds (rated A or BBB by S&P or A or Baa by
Moody's) are defined as having adequate capacity to pay interest and repay
principal. In addition, certain medium investment-grade bonds are considered to
have speculative characteristics. The Financial Services Fund may invest up to
5% of its assets in debt securities which are rated below investment-grade
(hereinafter referred to as "low-rated securities") or which are unrated, but
deemed equivalent to those rated below investment-grade by the Advisor . The
Value Fund may invest up to 20% of its assets in debt securities rated below
investment-grade but will invest no more than 10% of its assets in securities
rated B or lower by Moody's or by S&P and may not invest more than 5% of its
assets in securities which are rated C by Moody's or D by S&P or of equivalent
quality as determined by the Advisor. These are commonly referred to as "junk
bonds." The lower the ratings of such debt securities, the greater their risks
render them like equity securities. For a more complete description of the risks
of such high yield/high risk securities, please refer to "Other Considerations."
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Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," "not readily
marketable," or "illiquid" restricted securities, i.e., which cannot be sold to
the public without registration under the Securities Act of 1933 (the "1933
Act") or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale. The Contrarian Fund, High Return Equity Fund and Small
Cap Value Fund will not invest more than 10%, and the Small Cap Relative Value
Fund, U.S Growth and Income Fund and Financial Services Fund will not invest
more than 15%, of the value of their net assets in illiquid securities.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid securities. Disposing of illiquid securities may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. A Fund may
have to bear the extra expense of registering such securities for resale and the
risk of substantial delay in effecting such registration. Also market quotations
are less readily available. The judgment of the Advisor may at times play a
greater role in valuing these securities than in the case of illiquid
securities.
Generally speaking, restricted securities may be sold in the U.S. only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
Zero Coupon Securities. Value Fund, U.S. Growth and Income Fund and Financial
Services Fund may invest in zero coupon securities which pay no cash income and
are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest (cash). Zero coupon securities which are convertible
into common stock offer the opportunity for capital appreciation as increases
(or decreases) in the market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently having similar maturities
and credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that, unlike bonds that pay interest throughout the period to
maturity, a Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, a Fund may
obtain no return at all on its investment.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities.
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The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain liquid assets in a segregated custodial account to cover its obligation
under the agreement. Each Fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory by the
Advisor. Such transactions may increase fluctuations in the market value of a
Fund's assets and may be viewed as a form of leverage.
Strategic Transactions And Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of the Fund's portfolio, or enhancing potential gain. These
strategies may be executed through the use of derivative contracts.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon, enter into various transactions such as swaps,
caps, floors, collars, currency forward contracts, currency futures contracts,
currency swaps or options on currencies, or currency futures and various other
currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, strategic transactions may also include new
techniques, instruments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used without limit (subject to certain
limitations imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Advisor's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number of
factors including the
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imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
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The Fund's use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the rules and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona fide hedging, risk management (including duration management) or other
portfolio and return enhancement management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Advisor.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
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The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the
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extent that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid assets
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise
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price in the case of a non cash-settled put, the same as an OCC guaranteed
listed option sold by the Fund, or the in-the-money amount plus any sell-back
formula amount in the case of a cash-settled put or call. In addition, when the
Fund sells a call option on an index at a time when the in-the-money amount
exceeds the exercise price, the Fund will segregate, until the option expires or
is closed out, cash or cash equivalents equal in value to such excess. OCC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, or with an election of either physical
delivery or cash settlement and the Fund will segregate an amount of cash or
liquid assets equal to the full value of the option. OTC options settling with
physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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 U.S. Growth and Income Fund will
not lend its securities if, as a result, the aggregate of such loans exceeds
30%of the value of the Fund's total assets. Loan arrangements made by a Fund
will comply with all other applicable regulatory requirements, including the
rules of the New York Stock Exchange, which require the borrower, after notice,
to redeliver the securities within the normal settlement time of five business
days. All relevant facts and circumstances, including the credit worthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors or Board of Trustees, as applicable. While voting rights may pass with
the loaned securities, if a material event occurs affecting an investment on
loan, the loan must be called and the securities voted. Each Fund (except for
U.S. Growth and Income Fund) does not intend to lend any of its securities if as
a result more than 5% of the net assets of the Fund would be on loan.
Warrants. Each Fund may invest in warrants, but U.S. Growth and Income Fund and
Value Fund may invest in warrants up to 5% of the value of respective total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by a Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
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Other Considerations. As reflected previously, the Financial Services Fund and
the Value Fund may invest a portion of their assets in fixed income securities
that are in the lower rating categories of recognized rating agencies or are
non-rated, commonly referred to as "junk bonds." These lower rated or non-rated
fixed income securities are considered, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also tend to be more sensitive to economic conditions
than are higher rated securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, regarding lower rated bonds may
depress the prices for such securities. These and other factors adversely
affecting the market value of high yield securities will adversely affect a
Fund's net asset value. Although some risk is inherent in all securities
ownership, holders of fixed income securities have a claim on the assets of the
issuer prior to the holders of common stock. Therefore, an investment in fixed
income securities generally entails less risk than an investment in common stock
of the same issuer.
High yield securities frequently are issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or a corporate takeover. Companies that issue such high yielding
securities often are highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with acquiring
the securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or recession, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer.
The Financial Services Fund may from time to time purchase securities on a
"when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Fund's intention
to be fully invested to the extent practicable and subject to the policies
stated above. While when-issued or forward delivery securities may be sold prior
to the settlement date, the Fund intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. At the time of settlement, the market value of the when-issued or forward
delivery securities may be more or less than the purchase price. The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
PORTFOLIO TRANSACTIONS
Brokerage Commissions.
Allocation of brokerage is supervised by the Advisor.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for a Fund is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Advisor seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of Scudder Investor
Services, Inc. ("SIS") with commissions charged on comparable transactions, as
well as by comparing commissions paid by a Fund to reported commissions paid by
others. The Advisor routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
18
<PAGE>
A Fund's purchases and sales of fixed-income securities are generally placed by
the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Advisor's practice to place such orders with
broker/dealers who supply brokerage and research services to the Advisor or a
Fund. The term "research services" 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. The
Advisor is authorized when placing portfolio transactions, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Advisor has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services
to the Advisor or a Fund in exchange for the direction by the Advisor of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Advisor may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS, which is a corporation registered
as a broker-dealer and a subsidiary of the Advisor. SIS will place orders on
behalf of a Fund with issuers, underwriters or other brokers and dealers. SIS
will not receive any commission, fee or other remuneration from a Fund for this
service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Advisor, it is the opinion of
the Advisor that such information only supplements the Advisor's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than a Fund, and not all such information is used by
the Advisor in connection with a Fund. Conversely, such information provided to
the Advisor by broker/dealers through whom other clients of the Advisor effect
securities transactions may be useful to the Advisor in providing services to a
Fund.
The Trustees or Directors 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.
Dreman Value Management, L.L.C.
Under the sub-advisory agreement between the Advisor and Dreman Value
Management, L.L.C. ("DVM"), DVM places all orders for purchases and sales of
Financial Services Fund's and High Return Equity Fund's securities. At times
investment decisions may be made to purchase or sell the same investment
securities of a 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 a 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 a Fund. On the
other hand, the ability of a Fund to participate in volume transactions may
produce better executions for a Fund in some cases. DVM, in effecting purchases
and sale of portfolio securities for the account of a Fund, will implement a
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 a 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
19
<PAGE>
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 a Fund and of other funds managed by the Advisor and its
affiliates, as well as to those firms that provide market, statistical and other
research information to a 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, a Fund
could pay a firm that provides research services commissions for effecting a
securities transaction for a 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 a Fund and other clients. Not
all of such research services may be useful or of value in advising a Fund.
Research benefits will be available for all clients of DVM. The sub-advisory fee
paid by the Advisor to DVM is not reduced because these research services are
received.
Brokerage Commissions
The table below shows total brokerage commissions paid by the Funds for the last
three fiscal years or periods, as applicable and for the most recent fiscal
year, the percentage thereof that was allocated to firms based upon research
information provided. The information for Small Cap Relative Value Fund,
Financial Services Fund and U.S. Growth and Income Fund is provided for the
periods since each Fund's commencement of operations, as noted below..
<TABLE>
<CAPTION>
Allocated to firms based
Fund Fiscal 1999 on Research in Fiscal 1999 Fiscal 1998 Fiscal 1997*
- ---- ----------- ----------------------- ----------- ------------
<S> <C> <C> <C> <C>
Contrarian Fund $630,729 80.88% $284,000 $243,000
Financial Services Fund $103,197 78.42% $116,000** $n/a
High Return Equity Fund $5,168,172 79.96% $2,979,000 $1,432,000
Small Cap Value Fund $1,309,151 82.76% $1,638,000 $1,339,000
Small Cap Relative Value Fund $5,126 99.41% $2,000** N/A
U.S. Growth and Income Fund $46,597 86.48% $18,223*** $n/a
Value Fund $1,084,754.83 85.30% $344,034 $354,337
</TABLE>
* January 1, 1997 - November 30, 1997 for Contrarian Fund, Financial Services
Fund, High Return Equity Fund and Small Cap Value fund..
** From March 9, 1998 through November 30, 1998
*** From January 30, 1998 through September 30, 1998.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc., ("Scudder Kemper" or the
"Advisor") 345 Park Avenue, New York, New York, is the investment manager of
each Fund. The Advisor is approximately 70% owned by Zurich Financial Services,
Inc., a newly formed global insurance and financial services company. Pursuant
to an investment management agreement, Scudder Kemper Investments, Inc. acts as
the investment Advisor of each Fund, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services, and permits any of its officers or employees to
serve without compensation as Board members or officers of the Funds if elected
to such positions. The investment management agreement provides that each Fund
pays the charges and
20
<PAGE>
expenses of its operations, including the fees and expenses of the directors
(except those who are affiliates of the Advisor or its affiliates), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records related thereto, taxes and membership dues. Each Fund bears
the expenses of registration of its shares with the SEC, and effective January
1, 2000, pays the cost of qualifying and maintaining the qualification of each
Fund's shares for sale under the securities laws of the various states ("Blue
Sky expenses"). Prior to January 1, 2000, Kemper Distributors Inc. ("KDI"), as
principal underwriter, paid the Blue Sky expenses.
AdvisorResponsibility for overall management of each Fund rests with its Board
members and officers. Professional investment supervision is provided by the
Advisor. The investment management agreements provide that the AdvisorAdvisor
shall act as each Fund's investment Advisor, manage its investments and provide
it with various services and facilities.
At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich and former investment manager of the Funds, and
Scudder changed it name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owned approximately 70% of the Advisor, with the balance
owned by the Advisor's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in the Advisor) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services, Inc. By way of a dual holding
company structure, former Zurich shareholder initially owned approximately 57%
of Zurich Financial Services, Inc., with the balance initially owned by former
B.A.T shareholders.
Upon consummation of this transaction, the Funds' existing investment management
agreements with the Advisor was deemed to have been assigned and, therefore,
terminated. The Board has approved new investment management agreements (the
"Agreements") with the Advisor, which are substantially identical to the current
investment management agreements, except for the dates of execution and
termination. These Agreements became effective upon the termination of the then
current investment management agreements and were approved by shareholders at a
special meeting.
Each Agreement will continue in effect until September 30, 2000 and from year to
year thereafter only if their continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or interested
persons of the Advisor or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
or of a majority of the outstanding voting securities of the Fund. Each
Agreements may be terminated at any time without payment of penalty by either
party on sixty days' notice and automatically terminates in the event of its
assignment.
The Advisor maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Advisor utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for each Fund and for clients of the Advisor,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for a Fund and also for other clients
advised by the Advisor. Investment decisions for a Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to a Fund.
Under the Agreements, the Advisor provides each Fund with continuing investment
management for each Fund's portfolio consistent with each Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of each Fund, what portfolio securities shall be
held or sold by each Fund and what portion of each Fund's
21
<PAGE>
assets shall be held uninvested, subject always to the provisions of the Trust's
Declaration of Trust and By-Laws, the 1940 Act and the Code and to each Fund's
investment objectives, policies and restrictions and subject, further, to such
policies and instructions as the Trustees of the Trust may from time to time
establish. The Advisor also advises and assists the officers of the Trust in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of each Fund.
The Advisor also renders significant administrative services (not otherwise
provided by third parties) necessary for each Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to each
Fund (such as a Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of a Fund's federal, state and
local tax returns; preparing and filing a Fund's federal excise tax returns;
assisting with investor and public relations matters; monitoring the valuation
of securities and the calculation of net asset value; monitoring the
registration of shares of a Fund under applicable federal and state securities
laws; maintaining each Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
each Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring each Fund's operating budget; processing the payment
of each Fund's bills; assisting each Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting each Fund in the
conduct of its business, subject to the direction and control of the Trustees or
Directors.
The Advisor pays the compensation and expenses of all Trustees or Directors,
officers and executive employees of the Trust or Corporation, as applicable,
affiliated with the Advisor and makes available, without expense to the Trust or
Corporation, the services of such Trustees or Directors, officers and employees
of the Advisor as may duly be elected officers or Trustees or Directors of the
Trust or Corporation, subject to their individual consent to serve and to any
limitations imposed by law, and provides the Trust's or Corporation's office
space and facilities, as applicable.
Under the Agreements each Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; the calculation of net asset value; taxes and
governmental fees; the fees and expenses of the transfer agent; the cost of
preparing stock certificates and any other expenses including clerical expenses
of issue, redemption or repurchase of shares; the expenses of and the fees for
registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Trust who are not affiliated with the
Advisor; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. Each Fund may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of each Fund. Each Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto.
The Agreements expressly provide that the Advisor shall not be required to pay a
pricing agent of each Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreements and in discussions with the Advisor
concerning such Agreements, the Trustees of the Trust who are not "interested
persons" of the Trust have been represented by Vedder, Price, Kaufman &
Kammholz, as independent counsel at each Fund's expense.
The Agreements provide that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by a Fund in connection with
matters to which the Agreements relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Advisor in the
performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreements.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including a Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the Trust
as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Trust.
Employees of the Advisor and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Advisor's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the
22
<PAGE>
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, imposes time periods during
which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate personnel.
The current investment management fee rates are payable monthly at the annual
rates shown below:
<TABLE>
<CAPTION>
Financial High Return Small Cap
Average Daily Net Assets Contrarian Fund Services Fund Equity Fund Value Fund
------------------------ --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
$0 - $250 million 0.75% 0.75% 0.75% 0.75%
$250 million - $1 billion 0.72 0.72 0.72 0.72
$1 billion - $2.5 billion 0.70 0.70 0.70 0.70
$2.5 billion - $5 billion 0.68 0.68 0.68 0.68
$5 billion - $7.5 billion 0.65 0.65 0.65 0.65
$7.5 billion - $10 billion 0.64 0.64 0.64 0.64
$10 billion - $12.5 billion 0.63 0.63 0.63 0.63
Over $12.5 billion 0.62 0.62 0.62 0.62
</TABLE>
<TABLE>
<CAPTION>
Small Cap Relative U.S. Growth and
Average Daily Net Assets Value Fund Income Fund Value Fund
------------------------ ---------- ----------- ----------
<S> <C> <C> <C>
$0 - $250 million 0.75% 0.60% 0.70%
$250 million - $500 million 0.72% 0.57 0.70
$500 million - $1 billion 0.72 0.57 0.65
$1 billion - $2.5 billion 0.70 0.55 0.65
$2.5 billion - $5 billion 0.68 0.53 0.65
$5 billion - $7.5 billion 0.65 0.53 0.65
$7.5 billion - $10 billion 0.64 0.53 0.65
$10 billion - $12.5 billion 0.63 0.53 0.65
Over $12.5 billion 0.62 0.53 0.65
</TABLE>
AdvisorAdvisorThe table below shows the total investment management fees paid by
the Funds for the last three fiscal years. The information for Small Cap
Relative Value Fund, Financial Services Fund and U.S. Growth and Income Fund is
presented for the periods since each Fund's commencement of operations, as noted
below.
<TABLE>
<CAPTION>
Fund Fiscal 1999 Fiscal 1998* Fiscal 1997
- ---- ----------- ------------ -----------
<S> <C> <C> <C>
Contrarian Fund $x,xxx,xxx $xxx,xxx $903,000
Financial Services Fund $x,xxx,xxx $721,000** N/A
High Return Equity Fund $xx,xxx,xxx $29,284,000 $12,084,000
Small Cap Value Fund $x,xxx,xxx $8,166,000 $5,160,000
Small Cap Relative Value Fund** $x,xxx $3,000*** N/A
U.S. Growth and Income Fund
Value Fund
</TABLE>
23
<PAGE>
* Fiscal year end for Small Cap Relative Value Fund, U.S. Growth and Income
Fund and Value Fund is 9/30. Fiscal year end for Contrarian Fund, Financial
Services Fund, High Return Equity Fund and Small Cap Value Fund is 11/30.
**March 9, 1998 - September 30, 1998***May 6, 1998 - September
30, 1998
FINANCIAL SERVICES FUND AND HIGH RETURN EQUITY FUND SUB- ADVISOR. Dreman Value
Management, L.L.C. ("DVM"), Three Harding Road, Red Bank, New Jersey 07701, is
the sub- Adviser for the Financial Services Fund and High Return Equity Fund.
DVM is controlled by David N. Dreman. DVM serves as sub- Adviser pursuant to the
terms of Sub-Advisory Agreements between it and the Advisor. DVM was formed in
April 1997 and has served as sub- Adviser for the High Return Equity Fund since
August 1997 and for Financial Services Fund since its inception in March, 1998.
Under the terms of the Sub-Advisory Agreements, DVM manages the investment and
reinvestment of the Financial Services Fund and High Return Equity Fund's
portfolios and will provide such investment advice, research and assistance as
the Advisor may, from time to time, reasonably request.
The Advisor pays DVM for its services a sub-advisory fee, payable monthly, at
the annual rate of 0.24% of the first $250 million of a Fund's average daily net
assets, 0.23% of the average daily net assets between $250 million and $1
billion, 0.224% of average daily net assets between $1 billion and $2.5 billion,
0.218% of average daily net assets between $2.5 billion and $5 billion, 0.208%
of average daily net assets between $5 billion and $7.5 billion, 0.205% of
average daily net assets between $7.5 billion and $10 billion, 0.202% of average
daily net assets between $10 billion and $12.5 billion and 0.198% of the Fund's
average daily net assets over $12 billion. In addition, for High Return Equity
Fund, The Advisor 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- Advisor.
The table below shows the total sub-advisory fees paid by the Funds for the last
three fiscal periods.
<TABLE>
<CAPTION>
Fund Fiscal 1999 Fiscal 1998 Fiscal 1997*
- ---- ----------- ----------- ------------
<S> <C> <C> <C>
Financial Services Fund $xx,xxx $86,000**
High Return Equity $x,xxx,xxx $9,776,000 $2,557,000
</TABLE>
* For the period August 1997 (beginning of sub-advisory relationship) through
November 30, 1997.
** For the period March 9, 1998 (commencement of operations) to November 30,
1998
The Sub-Advisory Agreements provide 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 Agreements relate, 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 Agreements.
The Sub-Advisory Agreement for High Return Equity Fund remains in effect until
December 31, 2002 unless sooner terminated or not annually approved as described
below. Notwithstanding the foregoing, the Sub-Advisory Agreement shall continue
in effect through December 31, 2002 and year to year thereafter, but only as
long as such continuance is specifically approved at least annually (a) by a
majority of the directors who are not parties to such agreement or interested
persons of any such party except in their capacity as directors of the Fund, and
(b) by the shareholders or the Board of the Fund. The Sub-Advisory Agreement may
be terminated at any time upon 60 days' notice by the Advisor or by the Board of
the Fund or by majority vote of the outstanding shares of the Fund, and will
terminate automatically upon assignment or upon termination of the Fund's
investment management agreement. DVM may not terminate the Sub-Advisory
Agreement prior to July 30, 2000. Thereafter, DVM may terminate the Sub-Advisory
Agreement upon 90 days' notice to the Advisor.
The Sub-Advisory Agreement for Financial Services Fund remains in effect until
February 1, 2003 unless sooner terminated or not annually approved as described
below. Notwithstanding the foregoing, the Sub-Advisory Agreement shall continue
in effect through February 1, 2003 and year to year thereafter, but only as long
as such continuance is specifically approved at least annually (a) by a majority
of the trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as trustees of KET, and (b) by the
shareholders of the Fund or the Board of Trustees of KET. The Sub-Advisory
Agreement may be terminated at any time upon 60 days' notice by the Advisor or
by the Board of Trustees of the Fund or by majority vote of the outstanding
shares of the Fund, and will terminate automatically upon assignment or upon
termination of the Fund's investment management agreement. The Sub-Advisor may
not terminate the Sub-Advisory
24
<PAGE>
Agreement prior to February 1, 2003. Thereafter, the Sub-Advisor may terminate
the Sub-Advisory Agreement upon 90 days' notice to the Advisor.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corp. ("SFAC"), a subsidiary of
Scudder Kemper Investments, Inc., is responsible for determining the daily net
asset value per share of the Funds and maintaining all accounting records
related thereto. Currently, SFAC receives no fee for its services to the
Contrarian, High Return Equity and Small Cap Value Funds; however, subject to
Board approval, at some time in the future, SFAC may seek payment for its
services to those Funds under its agreement with such Funds. Pursuant to each
Fund's accounting agreement, the Financial Services Fund, Small Cap Relative
Value Fund, U.S. Growth and Income Fund and Value Fund each pay SFAC an annual
fee equal to 0.025% of the first $150 million of average daily net assets,
0.0075% of the next $850 million of such assets and 0.0045% of such assets in
excess of $1 billion, plus holding and transaction charges for this service. For
fiscal year 1999, the Financial Services Fund paid $94,000 in fees to Scudder
Fund Accounting Corporation pursuant to the fund accounting agreement, and for
the period of March 9, 1998 (commencement of operations) to November 30, 1998,
the Financial Services Fund paid $88,000. For the fiscal year ended 1998, Small
Cap Relative Value Fund did not pay any fees to SFAC, and for the period January
30, 1998 to September 30, 1998, U.S. Growth and Income Fund paid no fees to SFAC
after a waiver of $25,000. For the period ending September 30, 1999, Small Cap
Relative Value Fund and U.S. Growth and Income Fund paid SFAC $37,500 and
$46,000, respectively. For the fiscal year ended September 30, 1999, Value Fund,
consisting of multiple classes of shares, incurred annual fees of $107,935, of
which $12,046 was unpaid at September 30, 1999. For the fiscal year ended
September 30, 1998, Value Fund, which consisted of multiple classes of shares
during such period, incurred annual fees of $50,128, of which $5,562 was unpaid
at September 30, 1998.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor, and a wholly-owned subsidiary of the Advisor, is the principal
underwriter and distributor for the shares of each Fund and acts as agent of
each Fund in the continuous offering of its shares. KDI bears all its expenses
of providing services pursuant to the distribution agreement, including the
payment of any commissions. Each Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI, as principal underwriter, pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services.
Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the periods noted.
25
<PAGE>
<TABLE>
<CAPTION>
Commissions
Commissions Retained Underwriter Commissions Paid to
Fund Fiscal Year by Underwriter Paid to All Firms Affiliated Firms
- ---- ----------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund 1999 $xx,xxx $xxx,xxx $x,xxx
1998 $52,000 $581,000 $5,000
1997* $90,000 $576,000 $--
Financial Services Fund 1999 $x,xxx,xxx $xxx,xxx $xxx,xxx
1998 $86,000 $3,035,000 $0
High Return Equity Fund 1999 $x,xxx,xxx $xx,xxx,xxx $xxx,xxx
1998 $2,099,000 $17,133,000 $228,000
1997* $3,113,000 $13,161,000 $221,000
Small Cap Value Fund 1999
1998 $233,000 $2,515,000 $57000
1997* $584,000 $4,828,000 $68,000
Small Cap Relative Value Fund 1999
1998** $1,000 $3,000 $0
U.S. Growth and Income Fund 1999 $x,xxx $x,xxx $x
1998*** $5,000 $292,000 $0
Value Fund 1999 $x,xxx $x,xxx $x
1998 $1,446 $351,886 $0
</TABLE>
* Amounts paid from January 1, 1997 through November 30, 1997.
** For the period of May 6, 1998 (commencement of operations) to September 30,
1998.
*** For the period of January 30, 1998 to September 30, 1998.
Class B and C Shares. The Funds have adopted plans under Rule 12b-1 that
provides for fees payable as an expense of the Class B shares and Class C shares
that are used by KDI to pay for distribution and services for those classes.
Because 12b-1 fees are paid out of fund assets on an ongoing basis, they will,
over time, increase the cost of investment and may cost more than other types of
sales charges. The table below shows amounts paid in connection with each Funds'
Rule 12b-1 Plan during the last three fiscal periods.
For its services under the distribution agreements, KDI receives a fee from each
Fund pursuant to a Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75%
of average daily net assets of such Fund attributable to Class B shares. This
fee is accrued daily as an expense of Class B shares. KDI also receives any
contingent deferred sales charges received on redemptions of Class B shares. See
"Redemption or Repurchase of Shares-Contingent Deferred Sales Charge-Class B
Shares." KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
For its services under the distribution agreements, KDI receives a fee from each
Fund pursuant to a Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75%
of average daily net assets of such Fund attributable to Class C shares. This
fee is accrued daily as an expense of Class C shares. KDI currently advances to
firms the first year distribution fee at a rate of 0.75% of the purchase price
of such shares. For periods after the first year, KDI currently intends to pay
firms for sales of Class C shares a distribution fee, payable quarterly, at an
annual rate of 0.75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by KDI or a Fund.
KDI also receives any contingent deferred sales charges received on redemptions
of Class C shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Charge--Class C Shares."
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.
26
<PAGE>
<TABLE>
<CAPTION>
Total Distribution
Distribution Contingent Distribution Fees Paid by
Fees Paid by Deferred Sales Fees Paid by Underwriter
Fund Class Fiscal Fund to Charge to Underwriter to to Affiliated
B Shares Year Underwriter Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx --
1998 $648,000 $117,000 $903,000 --
1997* $353,000 $62,000 $989,000 --
Financial 1999 $xxx,xxx $xxx,xxx $xxx,xxx
Services Fund
1998 $397,000 $122,000 $3,952,000 $33,000
High Return 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Equity Fund
1998 $13,773,000 2,717,000 $34,050,000 --
1997* $5,477,000 $817,000 $29,872,000 --
Small Cap 1999 $xxx,xxx $xxx,xxx $xxx,xxx --
Value Fund
1998 $3,293,000 $857,000 $4,888,000 --
1997* $1,716,000 $221,000 $9,907,000 --
Small Cap 1999 $0 $xxx,xxx $xxx,xxx --
Relative Value
Fund
1998** $0 $46,000 --
U.S. Growth and 1999 $xxx,xxx $xxx,xxx
Income Fund
1998 $12,000 2,000 $256,000
Value Fund 1999 $xxx,xxx $xxx,xxx
1998 $28,037 $9,480 $674,408 $0
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
Marketing Misc.
Fund Class Fiscal Advertising Prospectus and Sales Operating Interest
B Shares Year and Literature Printing Expenses Expenses Expense
- -------- ---- -------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
1998 $119,000 $12,000 $231,000 $54,000 $286,000
1997* $96,000 $7,000 $287,000 $7,000 $166,000
Financial 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Services Fund
1998 $240,000 $28,000 $597,000 $82,000 $234,000
High Return 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Equity Fund
1998 $4,192,000 $425,000 $8,215,000 $1,224,000 $6,398,000
1997* $2,812,000 $210,000 $7,887,000 $330,000 $2,538,000
Small Cap 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Value Fund
1998 $969,000 $94,000 $1,736,000 $80,000 $1,730,000
1997* $867,000 $65,000 $2,409,000 $78,000 $810,000
Small Cap 1999 -- -- $xxx,xxx $xxx,xxx $xxx,xxx
Relative Value
Fund
1998** -- -- $1,000 $1,000 $1,000
U.S. Growth and 1999 $xxx,xxx $xxx,xxx $xxx,xxx
Income Fund
1998 $11,000 $1,000 $28,000 $9,000 $10,000
Value Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx
1998 $11,890 $1,657 $36,916 $12,606 $15,135
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Total Distribution
Distribution Contingent Distribution Fees Paid by
Fees Paid by Deferred Sales Fees Paid by Underwriter
Fund Class Fiscal Fund to Charge to Underwriter to to Affiliated
B Shares Year Underwriter Underwriter Firms Firms
- -------- ---- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Contrarian Fund 1999 x,xxxx x,xxxx x,xxxx x,xxxx
1998 $70,000 $3,000 $73,000 --
1997* $29,000 $2,000 $38,000 --
Financial 1999 $xxx,xxx $xxx,xxx $xxx,xxx
Services Fund
1998 $60,000 $7,000 $2,000 $2,000
High Return 1999 xx,xxxx x,xxxx x,xxxx x,xxxx
Equity Fund
1998 $2,588,000 $105,000 $2,886,000 --
1997 $901,000 $31,000 $1,417,000 --
Small Cap 1999 xx,xxx xx,xxx xx,xxx xx,xxx
Value Fund
1998 $803,000 $40,000 $984,000 --
1997* $392,000 $22,000 $677,000 --
Small Cap 1999* $0 -- -- --
Relative Value
Fund**
1998 $0 -- -- --
U.S. Growth and 1999 $xxx,xxx $xxx,xxx
Income Fund
1998 $12,000 2,000 $256,000
Value Fund 1999 $xxx,xxx $xxx,xxx
1998 $4,063 $127 $2,833 $0
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
Marketing Misc.
Fund Class Fiscal Advertising Prospectus and Sales Operating Interest
B Shares Year and Literature Printing Expenses Expenses Expense
- -------- ---- -------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1999 x,xxxx x,xxxx x,xxxx x,xxxx x,xxxx
1998 $22,000 $2,000 $44,000 $16,000 $17,000
1997* $12,000 $1,000 $35,000 $9,000 $9,000
Financial 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Services Fund
1998 $48,000 $6,000 $121,000 $17,000 $6,000
High Return 1999 x,xxxx x,xxxx v x,xxxx v
Equity Fund
1998 $956,000 $99,000 $1,915,000 $292,000 $428,000
1997 $565,000 $42,000 $1,309,000 $32,000 $150,000
Small Cap 1999 xx,xxx xx,xxx xx,xxx xx,xxx xx,xxx
Value Fund
1998 $296,000 $29,000 $540,000 $99,000 $185,000
1997* $248,000 $19,000 $537,000 $10,000 $69,000
Small Cap 199* -- -- $1,000 -- --
Relative Value
Fund**
1998 -- -- $1,000 -- --
U.S. Growth and 1999 $xxx,xxx $xxx,xxx $xxx,xxx
Income Fund
1998 $11,000 $1,000 $28,000 $9,000 $10,000
Value Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx
1998 $1,880 $273 $5,906 $7,228 $161
</TABLE>
(1) No contingent deferred sales charges have been imposed on Class C shares
purchased prior to April 1, 1996.
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from May 6, 1998 (commencement of operations) to September 30,
1998.
*** Amounts shown are after expense waiver.
28
<PAGE>
Rule 12b-1 Plan. If a Rule 12b-1 Plan (the "Plan") is terminated in accordance
with its terms, the obligation of a Fund to make payments to KDI pursuant to the
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
Each distribution agreement and Rule 12b-1 Plan continues in effect from year to
year so long as such continuance is approved for each class at least annually by
a vote of the Board of the Fund, including the Board members who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. Each agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by a Fund for that Fund or by KDI upon 60 days' notice. Termination by a Fund
with respect to a class may be by vote of a majority of the Board or a majority
of the Board members who are not interested persons of the Fund and who have no
direct or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. A Rule 12b-1 Plan may not be amended for a class to increase the fee
to be paid by a Fund with respect to such class without approval by a majority
of the outstanding voting securities of such class of a Fund and all material
amendments must in any event be approved by the Board in the manner described
above with respect to the continuation of the agreement.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to 0.25% of average daily net assets of the Class A, B and C shares of the
Fund.
KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors in the Funds. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate of up to 0.25% of the net assets
in the Funds' accounts that it maintains and services attributable to Class A
shares, commencing with the month after investment. With respect to Class B and
Class C shares, KDI currently advances to firms the first-year service fee at a
rate of up to 0.25% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms a service fee at a rate of up to
0.25% (calculated monthly and normally paid quarterly) of the net assets
attributable to Class B and C shares maintained and serviced by the firm. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or the Fund. Firms to which service fees
may be paid may include affiliates of KDI. 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 a Fund.
The following information concerns the administrative services fee paid by each
Fund for the fiscal years ended 1999, 1998 and 1997. The information for Small
Cap Relative Value Fund, Financial Services Fund and U.S. Growth and Income Fund
is presented for the periods since each Fund's commencement of operations, as
noted below.
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Service Fees Paid
Fiscal Service Fees Paid by by Administrator
Fund Year Class A Class B Class C Administrator to Firms to Affiliated Firms
- ---- ---- ------- ------- ------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund 1999 $xxx,xxx $xxx,xxx $xx,xxx $xxx,xxx $x
1998 $263,000 $214,000 $23,000 $497,000 $0
1997* $146,000 $111,000 $10,000 $284,000 --
Financial Services 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Fund
1998 $123,000 $132,000 $20,000 $344,000 $0
<PAGE>
Administrative Service Fees Paid by Fund
----------------------------------- ----
Service Fees Paid
Fiscal Service Fees Paid by by Administrator
Fund Year Class A Class B Class C Administrator to Firms to Affiliated Firms
- ---- ---- ------- ------- ------- ---------------------- -------------------
High Return Equity 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Fund
1998 $4,407,000 $4,610,000 $872,000 $10,206,000 $21,000
1997* $1,732,000 $1,818,000 $299,000 $4,879,000 $15,000
Small Cap Value Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
1998 $1,384,000 $1,099,000 $266,00 $2,586,000 $5,000
1997* $936,000 $577,000 $130,000 $2,042,000 $5,000
Small Cap Relative 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $0
Value Fund
1998** $0 $0*** $0*** $2,000 $0
U.S. Growth and Income 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
Fund
1998 $12,000 $6,000 $0 $256,000 $0
Value Fund 1999 $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx
1998 $11,901 $9,334 $1,346 $22,581 $0
</TABLE>
* Amounts paid from January 1, 1997 through November 30, 1997
** Amounts paid from May 6, 1998 (commencement of operations) to September 30,
1998.
*** Amounts shown are after expense waiver.
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 payable at the annual rate of
0.25% based upon Fund assets in accounts for which a firm provides
administrative services and, effective January 1, 2000, each Fund will pay KDI
an administrative service fee at the annual rate of 0.15% based upon Fund assets
in accounts for which there is no firm (other than KDI) listed on the Fund's
records. The effective administrative services fee rate to be charged against
all assets of a Fund while this procedure is in effect will depend upon the
proportion of a Fund's assets that is in accounts for which a firm of record
provides administrative services.
Certain Board members or officers of the Funds are also directors or officers of
the Advisor or KDI as indicated under "Officers and Board Members."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT., State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts 02110
as custodian, has custody of all securities and cash of the Funds. State Street
attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Funds. Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 is the transfer agent and dividend-paying agent for the Contrarian, High
Return Equity and Small Cap Value Funds. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSVC"), an affiliate of the Advisor, serves as
"Shareholder Service Agent" of the Contrarian, High Return Equity and Small Cap
Value Funds, and as such, performs all of IFTC's duties as transfer agent and
dividend paying agent. KSVC also serves as the transfer agent and
dividend-paying agent, as well as the Shareholder Service Agent, of the Small
Cap Relative Value Fund, Financial Services Fund, U.S. Growth and Income Fund.
Scudder Service Corporation ("SSC") acts as the transfer agent and
dividend-paying agent, as well as the Shareholder Service Agent of Value Fund.
IFTC receives as transfer agent for the Contrarian, High Return Equity and Small
Cap Value Funds, and pays to KSVC as follows: annual account fees of $10.00
($18.00 for retirement accounts) plus set up charges, annual fees associated
with the contingent deferred sales charges (Class B only), an asset-based fee of
0.08% and out-of-pocket reimbursement. KSVC receives as transfer agent for the
Small Cap Relative Value Fund annual account fees of $10.00 ($18.00 for
retirement accounts) plus set up charges, annual fees associated with the
contingent deferred sales charges (Class B only), an asset-based fee of 0.08%
and out-of-pocket reimbursement. The following shows for each Fund, the
shareholder service fees remitted to KSVC for fiscal year 1999.
31
<PAGE>
Fund Fees Paid to KSvC
- ---- -----------------
Contrarian Fund $xxx,xxx
Financial Services Fund $465,000
High Return Equity Fund $10,911,000
Small Cap Value Fund $2,711,000
Small Cap Relative Value Fund $10,000
U.S. Growth and Income Fund $158,000
Fund Fees Paid to SSC
- ---- ----------------
Value Fund 2,711,000
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
(except for Kemper Value Fund, which uses PricewaterhouseCoopers LLP, 160
Federal Street, Boston, Massachusetts 02110) audit and report on the Funds'
annual financial statements, review certain regulatory reports and the Funds'
federal income tax returns, and perform other professional accounting, auditing,
tax and advisory services when engaged to do so by the Funds. Shareholders will
receive annual audited financial statements and semi-annual unaudited financial
statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Contrarian, High Return
Equity and Small Cap Value Funds. Dechert Price & Rhoads, Ten Post Office Square
South, Boston, Massachusetts serves as counsel to the Small Cap Relative Value
Fund, Financial Services Fund, U.S. Growth and Income Fund and Value Fund.
PURCHASE, Repurchase AND REDEMPTION OF SHARES
Alternative Purchase Arrangements. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than 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.
31
<PAGE>
<TABLE>
<CAPTION>
Annual12b-1 Fees
Sales (as a % of
Charge average daily net assets) Other Information
------ -------------------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales None Initial sales charge waived
charge of 5.75% of the or reduced for certain
public offering price purchases
Class B Maximum contingent 0.75% Shares convert to Class A
deferred sales charge of shares six years after
4% of redemption proceeds; issuance
declines to zero after
six years
Class C Contingent deferred sales 0.75% No conversion feature
charge of 1% of redemption
proceeds for redemptions
made during first year after
purchase
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge Allowed
As a Percentage As a Percentage to Dealers as a
of of Net Percentage of
Amount of Purchase Offering Price Asset Value* Offering Price
------------------ -------------- ------------ --------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent
deferred sales charge as discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow to dealers up to the full applicable sales
charge, as shown in the above table, during periods and for transactions
specified in such notice and such reallowances may be based upon attainment of
minimum sales levels. During periods when 90% or more of the sales charge is
reallowed, such dealers may be deemed to be underwriters as that term is defined
in the Securities Act of 1933.
32
<PAGE>
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale under the foregoing schedules, KDI will
consider the cumulative amount invested by the purchaser in a Fund and other
Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above and including
purchases of Class R shares of certain Scudder funds. The privilege of
purchasing Class A shares of a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege also applies.
Class A shares of a Fund or any other Kemper Mutual Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et.
al., Case No. 93 C 5231 (N.D.IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement dated August 31, 1995, issued in connection with
the aforementioned court proceeding. For sales of Fund shares at net asset value
pursuant to this privilege, KDI may in its discretion pay investment dealers and
other financial services firms a concession, payable quarterly, at an annual
rate of up to .25% of net assets attributable to such shares maintained and
serviced by the firm. A firm becomes eligible for the concession based upon
assets in accounts attributable to shares purchased under this privilege in the
month after the month of purchase and the concession continues until terminated
by KDI. The privilege of purchasing Class A shares of the Fund at net asset
value under this privilege is not available if another net asset value purchase
privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its Advisor , its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with KDI; (c)
officers, directors, and employees of service agents of the Funds; (d)
shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on September
8, 1995, and have continuously owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves or members of their
families; and (e) any trust, pension, profit-sharing or other benefit plan for
only such persons. Class A shares may be sold at net asset value in any amount
to selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services related
to order placement and payment to facilitate transactions in shares of the Funds
for their clients pursuant to an agreement with KDI or one of its affiliates.
Only those employees of such banks and other firms who as part of their usual
duties provide services related to transactions in Fund shares may purchase a
Fund's Class A shares at net asset value hereunder. Class A shares may be sold
at net asset value in any amount to unit investment trusts sponsored by Ranson &
Associates, Inc. In addition, unitholders of unit investment trusts sponsored by
Ranson & Associates, Inc. or its predecessors may purchase a Fund's Class A
shares at net asset value through reinvestment programs described in the
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prospectuses of such trusts that have such programs. Class A shares of a Fund
may be sold at net asset value through certain investment Advisors registered
under the Investment Advisers Act of 1940 and other financial services firms
that adhere to certain standards established by KDI, including a requirement
that such shares be sold for the benefit of their clients participating in an
investment advisory program under which such clients pay a fee to the investment
advisor or other firm for portfolio management and other services. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the Funds. The Funds may also
issue Class A shares at net asset value in connection with the acquisition of
the assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Funds for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter." Class B shares of
a Fund will automatically convert to Class A shares of the same Fund six years
after issuance on the basis of the relative net asset value per share. The
purpose of the conversion feature is to relieve holders of Class B shares from
the distribution services fee when they have been outstanding long enough for
KDI to have been compensated for distribution related expenses. For purposes of
conversion to Class A shares, shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares in a
shareholder's Fund account will be converted to Class A shares on a pro rata
basis.
Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon redemption
of Class C shares within one year of purchase. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares." KDI currently
advances to firms the first year distribution fee at a rate of 0.75% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm. KDI is compensated by each Fund for
services as distributor and principal underwriter for Class C shares. See
"Investment Manager and Underwriter."
Shares of a Fund are sold at their public offering price, which is the net asset
value per share of the Fund next determined after an order is received in proper
form plus, with respect to Class A shares, an initial sales charge. The minimum
initial
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investment is $1,000 and the minimum subsequent investment is $100 but such
minimum amounts may be changed at any time. An order for the purchase of shares
that is accompanied by a check drawn on a foreign bank (other than a check drawn
on a Canadian bank in U.S. Dollars) will not be considered in proper form and
will not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund.
Each Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI, to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on a Fund's behalf. Orders for
purchase or redemption will be deemed to have been received by a Fund when such
brokers or their authorized designees accept the orders. Subject to the terms of
the contract between a Fund and the broker, ordinarily orders will be priced at
a Fund's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of a Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees or Directors as the case may be ("Board") of
a Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of a Fund at any time for any reason.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares or Class C shares by certain classes of persons or
through certain types of transactions are provided because of anticipated
economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of a its net assets, or (c) for such other periods
as the SEC may by order permit for the protection of a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or ruling by the Internal
Revenue Service or other assurance acceptable to each Fund to the effect that
(a) the assessment of the distribution services fee with respect to Class B
shares and not Class A shares and the assessment of the administrative services
fee with respect to each Class does not result in the Fund's dividends
constituting "preferential dividends" under the Internal Revenue Code, and (b)
that the conversion of Class B shares to Class A shares does not constitute a
taxable event under the Internal Revenue Code. The conversion of Class B shares
to Class A shares may be suspended if such assurance is not available. In that
event, no further conversions of Class B shares would occur, and shares might
continue to be subject to the distribution services fee for an indefinite period
that may extend beyond the proposed conversion date.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a
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Fund is asked to redeem shares for which it may not have yet received good
payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct Deposit), it
may delay transmittal of redemption proceeds until it has determined that
collected funds have been received for the purchase of such shares, which may be
up to 10 days from receipt by a Fund of the purchase amount. The redemption
within two years of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge (see "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares"), the redemption of Class B shares within six years may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge--Class B
Shares" below) and the redemption of Class C shares within the first year
following purchase may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge--Class C Shares" below).
Because of the high cost of maintaining small accounts, the Funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges, unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone instructions are genuine.
The shareholder will bear the risk of loss, including loss resulting from
fraudulent or unauthorized transactions, so long as the reasonable verification
procedures are followed. The verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Funds reserve the right to terminate or modify
this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable Fund next determined after receipt
of a request by KDI. However, requests for repurchases received by dealers or
other firms prior to the determination of net asset value (see "Net Asset
Value") and received by KDI prior to the close of KDI's business day will be
confirmed at the net asset value effective on that day. The offer to repurchase
may be suspended at any time. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
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Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by a Fund for up to seven days if
the Advisor deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Funds are not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Funds currently do not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Funds reserve the right to terminate or
modify this privilege at any time.
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge--Class B Shares. A
contingent deferred sales charge may be imposed upon
redemption of Class B shares. There is no such charge upon
redemption of any share appreciation or reinvested dividends
on Class B shares. The charge is computed at the following
rates applied to the value of the shares redeemed excluding
amounts not subject to the charge.
- ----------------------------------------------- --------------------------------
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
First 4%
- ----------------------------------------------- --------------------------------
Second 3%
- ----------------------------------------------- --------------------------------
Third 3%
- ----------------------------------------------- --------------------------------
Fourth 2%
- ----------------------------------------------- --------------------------------
Fifth 2%
- ----------------------------------------------- --------------------------------
Sixth 1%
- ----------------------------------------------- --------------------------------
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age
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59 1/2 and (e) for redemptions to satisfy required minimum distributions after
age 70 1/2 from an IRA account (with the maximum amount subject to this waiver
being based only upon the shareholder's Kemper IRA accounts). The contingent
deferred sales charge will also be waived in connection with the following
redemptions of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent: (a) redemptions to satisfy participant loan advances
(note that loan repayments constitute new purchases for purposes of the
contingent deferred sales charge and the conversion privilege), (b) redemptions
in connection with retirement distributions (limited at any one time to 10% of
the total value of plan assets invested in a Fund), (c) redemptions in
connection with distributions qualifying under the hardship provisions of the
Code and (d) redemptions representing returns of excess contributions to such
plans.
Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemptions by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent; (c) redemption of shares of a
shareholder (including a registered joint owner) who has died; (d) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration); (e) redemptions
under a Fund's Systematic Withdrawal Plan at a maximum of 10% per year of the
net asset value of the account; (f) any participant-directed redemption of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent; (g) redemption of shares by an employer sponsored employee benefit plan
that offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance of the first year administrative service and distribution
fees applicable to such shares and agrees to receive such fees quarterly; and
(h) redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year administrative services and
distribution fees applicable to such shares and has agreed to receive such fees
quarterly.
Contingent Deferred Sales Charge--General. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor 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, 1999 will be eligible for the 3% charge if redeemed on
or after May 1, 2000. 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 th
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redemption of such shares, at net asset value in Class A shares of a Fund or of
the Kemper Mutual Funds listed under "Special Features--Class A Shares--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of a Fund, the reinvestment in the same
Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
Redemption in Kind. Although it is each Fund's present policy to redeem in cash,
if the Board determines that a material adverse effect would be experienced by
the remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board may deem fair
and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be as liquid as a redemption entirely in cash.
SPECIAL FEATURES
Class A Shares--Combined Purchases. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Funds Trust, Kemper Income Trust, 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 Strategic Income Fund, Kemper High Yield Series, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target
Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund (available only upon
exchange or conversion from Class A shares of another Kemper Mutual Fund),
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper
Value Series, Inc., Kemper Value Plus Growth Fund, Kemper Horizon Fund, Kemper
New Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper Securities Trust and Kemper Equity
Trust ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered "Kemper Mutual Funds" for purposes hereof. For purposes
of the Combined Purchases feature described above as well as for 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.
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<PAGE>
Class A Shares--Cumulative Discount. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
Class A Shares--Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of the
contingent deferred sales charge.
Class B Shares. Class B shares of a Fund and Class B shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class B shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of determining the contingent deferred sales
charge that may be imposed upon the redemption of the shares received on
exchange, amounts exchanged retain their original cost and purchase date.
General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). The Fund reserves
the right to invoke the 15-Day Hold Policy for exchanges of $1,000,000 or less
if, in the investment manager's judgement, the exchange activity may have an
adverse effect on the Fund. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to the Fund and therefor may
be subject to 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:
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Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares--General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Kemper Funds that are eligible for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and the portfolios of Investors Municipal Cash Fund are available for
sale only in certain states. Except as otherwise permitted by applicable
regulations, 60 days' prior written notice of any termination or material change
will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Fund, a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to KSVC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and maximum $50,000) from the shareholder's account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit, the shareholder authorizes the Fund and its agents to either draw
checks or initiate Automated Clearing House debits against the designated
account at a bank or other financial institution. This privilege may be selected
by completing the appropriate section on the Account Application or by
contacting the Shareholder Service Agent for appropriate forms. A shareholder
may terminate his or her Plan by sending written notice to KSvC, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Funds may terminate or modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic
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payment is $100. The maximum annual rate at which Class B shares (and Class A
shares purchased under the Large Order NAV Purchase Privilege and Class C shares
in the first year following the purchase) may be redeemed under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
Traditional, Roth and Education Individual Retirement Accounts ("IRAs")
with IFTC as custodian. This includes Savings Incentive Match Plan for Employees
of Small Employers ("SIMPLE") IRA accounts and Simplified Employee Pension Plan
("SEP") IRA accounts and prototype documents.
403(b)(7) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of 25%
of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax adviser before establishing a retirement plan.
ADDITIONAL TRANSACTION INFORMATION
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks or other financial services firms may be subject to
various federal and 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 a Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over' of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSVC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KDI in acknowledgment of their
dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Funds. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds, or other funds underwritten by
KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to
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the close of its business day will be confirmed at a price based on the net
asset value effective on that day ("trade date"). Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends.
Such firms, including affiliates of KDI, may receive compensation from the Funds
through the Shareholder Service Agent for these services. This prospectus should
be read in connection with such firms' material regarding their fees and
services.
The Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of shares of any Fund or class of a
Fund to new investors. During the period of such suspension, persons who are
already shareholders of such class of such Fund normally are permitted to
continue to purchase additional shares of such Fund or class and to have
dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
NET ASSET VALUE
The net asset value per share of each Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for trading. The Exchange is scheduled to be closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the Advisor may calculate the price of that debt security, subject to
limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any
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Calculated Mean, the options contract is valued at the most recent bid quotation
in the case of a purchased options contract, or the most recent asked quotation
in the case of a written options contract. An options contract on securities,
currencies and other financial instruments traded over-the-counter is valued at
the most recent bid quotation in the case of a purchased options contract and at
the most recent asked quotation in the case of a written options contract.
Futures contracts are valued at the most recent settlement price.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects the fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation is used is expressed ("Local Currency"),
the value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian Fund, High Return Equity Fund, and U.S. Growth and
Income Fund normally distribute quarterly dividends of net investment income,
the Financial Services Fund normally distributes semi-annual dividends of net
investment income and the Small Cap Value Fund, Small Cap Relative Value Fund
and Value Fund normally distribute annual dividends of net investment income.
Each Fund distributes any net realized short-term and long-term capital gains at
least annually to prevent application of a federal excise tax. Additional
distributions, including distributions of net short-term capital gains in excess
of net long-term capital losses, may be made, if necessary.
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 the Fund determines appropriate under
the then current circumstances. In particular, and without limiting the
foregoing, a Fund may make additional distributions of net investment income or
capital gain net income in order to satisfy the minimum distribution
requirements contained in the Internal Revenue Code (the "Code"). Dividends will
be reinvested in shares of the Fund paying such dividends unless shareholders
indicate in writing that they wish to receive them in cash or in shares of
Kemper Funds.
Each Fund intends to follow the practice of distributing substantially all of
its investment company taxable income which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Funds
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Funds may retain all or part of such gain for reinvestment, after paying the
related federal taxes for which shareholders may then be able to claim a credit
against their federal tax liability. If a Fund does not distribute the amount of
capital gain and/or net investment income required to be distributed by an
excise tax provision of the Code, the Funds may be subject to that excise tax.
In certain circumstances, a Fund may determine that it is in the interest of
shareholders to distribute less than the required amount. (See "TAXES.")
Income and capital gains dividends, if any, of each Fund will be credited to
shareholder accounts in full and fractional Fund shares of the same class at net
asset value except that, upon written request to the Shareholder Service Agent,
a shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gain dividends in shares of the same class at net asset value;
or
(2) To receive income and capital gain dividends in cash.
Any dividends a Fund that are reinvested normally will be reinvested in shares
of the same class of that Fund. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of a Fund invested
without sales charge in shares of the same class of another Kemper Fund at the
net asset value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
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privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account balance of $1,000 in the Fund
distributing the dividends. The Fund will reinvest dividend checks (and future
dividends) in shares of that same class of that Fund if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of that Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
With respect to each Fund, 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 of that Fund primarily as a result of the distribution
services fee applicable to Class B and Class C shares. Distributions of capital
gains, if any, will be paid in the same proportion for each class.
TAXES. The Funds intend to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, generally will not be
subject to federal income taxes to the extent its earnings are distributed. To
so qualify, a Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain).
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income. If any net realized long-term capital gains in excess of net
realized short-term capital losses are retained by a Fund for reinvestment,
requiring federal income taxes to be paid thereon by a Fund, the Funds intend to
elect to treat such capital gains as having been distributed to shareholders. As
a result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by a
Fund on such gains as a credit against personal federal income tax liability,
and will be entitled to increase the adjusted tax basis on Fund shares by the
difference between such gains reported and the individual tax credit.
Certain foreign currency-related gains and losses earned by a Fund may be
treated as ordinary income or loss.
The current position of the Internal Revenue Service is to treat a fund, such as
the Funds, as owning its proportionate share of the income and assets of any
partnership in which it is a partner, in applying the various regulated
investment company qualification tests. These requirements may limit the extent
to which the Funds may invest in partnerships, especially in the case of
partnerships that do not invest primarily in a diversified portfolio of stocks
and securities.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its net capital gain for the one-year period ending
October 31, plus any undistributed net investment income from the prior calendar
year, plus any undistributed net capital gain from the one year period ended
October 31 of the prior calendar year, minus any overdistribution in the prior
calendar year. Each Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of shares held six months or less will be treated
as long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. An exchange of a Fund's shares
for shares of another fund is treated as a redemption and reinvestment for
federal income tax purposes upon which gain or loss may be recognized. A
shareholder who has redeemed shares of a Fund or other Kemper Mutual Fund listed
in the prospectus under "Special Features -- Class A Shares -- Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of a Fund or in shares
of a Kemper Mutual Fund within six months of the redemption as described in the
prospectus under "Redemption or Repurchase of Shares -- Reinvestment Privilege."
If redeemed shares were held less 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
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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.
To the extent that dividends from domestic corporations constitute a portion of
a Fund's gross income, a portion of the income distributions of the Fund may be
eligible for the deduction for dividends received by corporations. Shareholders
will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholder,
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option and,
in the case of an exercise of the option, on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or substantially identical security in a Fund's
portfolio. If a Fund writes a call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as a short-term capital gain or loss. If a call option is exercised, any
resulting gain or loss is short-term or long-term capital gain or loss depending
on the holding period of the underlying security. The exercise of a put option
written by the Fund is not a taxable transaction for the Fund.
46
<PAGE>
Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of the Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under certain circumstances, entry into a futures
contract to sell a security may constitute a short sale for federal income tax
purposes, causing an adjustment in the holding period of the underlying security
or a substantially identical security in a Fund's portfolio.
Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.
Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. Each Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, Section 1259 of the Code may require a
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if a Fund enters into a short sale, offsetting
notional principal contract, futures or forward contract transaction with
respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of a Fund's taxable year, if certain
conditions are met.
Similarly, under Section 1233(h) of the Code, if a Fund enters into a short sale
of property that becomes substantially worthless, that Fund will be required to
recognize gain at that time as though it had closed the short sale. Future
regulations may apply similar treatment to other strategic transactions with
respect to property that becomes substantially worthless.
If a Fund holds zero coupon securities or other securities which are issued at a
discount a portion of the difference between the issue price and the face value
of such securities ("original issue discount") will be treated as income to such
Fund each year, even though such Fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of such Fund which must
be distributed to shareholders in order to maintain the qualification of such
Fund as a regulated investment company and to avoid federal income tax at the
Fund level. If a Fund acquires a debt instrument at a market discount, a portion
of the gain recognized (if any) on disposition of such instrument may be treated
as ordinary income.
Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the applicable investment company
with their taxpayer identification numbers and with required certifications
regarding their status under the federal income tax law. Withholding may also be
required if a shareholder or a Fund is notified by the IRS or a broker that the
taxpayer identification number furnished by the shareholder is incorrect or that
the shareholder has previously failed to report interest or dividend income. If
the withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and
47
<PAGE>
redemption programs. Information for income tax purposes will be provided after
the end of the calendar year. Shareholders are encouraged to retain copies of
their account confirmation statements or year-end statements for tax reporting
purposes. However, those who have incomplete records may obtain historical
account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account. In January of each year each Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Contrarian Fund, High Return Equity Fund and Small Cap Value Fund are
Maryland corporations. The Financial Services Fund, Small Cap Relative Value
Fund, Value Fund and U.S. Growth and Income Fund are Massachusetts business
trusts. Generally, each individual Fund should not be subject to income or
franchise tax in the State of Maryland or the Commonwealth of Massachusetts,
except to the extent that such individual Fund incurs federal taxable income, if
any, and provided that such individual Fund continues to be treated as a
regulated investment company under Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders of a Fund may be subject to state, local and foreign taxes on Fund
distributions and dispositions of Fund shares.
Shareholders should consult their tax advisors about the application of the
provisions of tax law in light of their particular tax situations.
Retirement Plans
Shares of a Fund may be purchased as an investment in a number of kinds of
retirement plans, including qualified pension, profit sharing, money purchase
pension, and 401(k) plans, Code Section 403(b) custodial accounts, and
individual retirement accounts.
One of the tax-deferred retirement plan accounts that may hold shares of a Fund
is an individual retirement account ("IRA"). There are three kinds of IRAs that
an individual may establish: traditional IRAs, Roth IRAs and education IRAs.
With a traditional IRA, an individual may be able to make a deductible
contribution of up to $2,000 or, if less, the amount of the individual's earned
income for any taxable year prior to the year the individual reaches 70 1/2 if
neither the individual nor his or her spouse is an active participant in an
employer's retirement plan. An individual who is (or who has a spouse who is) an
active participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that year. One
spouse also may contribute up to $2,000 per year to the other spouse's own IRA,
even if the other spouse has earned income of less than $2,000, as long as the
spouses' joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan, may be rolled over into a
traditional IRA also.
With a Roth IRA, an individual may make only non-deductible contributions;
contributions can be made of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year, but only if the individual's
(and spouse's, if applicable) adjusted gross income for the year is less than
$95,000 for single individuals or $150,000 for married individuals. The maximum
contribution amount phases out and falls to zero between $95,000 and $110,000
for single persons and between $150,000 and $160,000 for married persons.
Contributions to a Roth IRA may be made even after the individual
48
<PAGE>
attains age 70 1/2. Distributions from a Roth IRA that satisfy certain
requirements will not be taxable when taken; other distributions of earnings
will be taxable. An individual with adjusted gross income of $100,000 or less
generally may elect to roll over amounts from a traditional IRA to a Roth IRA.
The full taxable amount held in the traditional IRA that is rolled over to a
Roth IRA will be taxable in the year of the rollover, except rollovers made for
1998, which may be included in taxable income over a four year period.
An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (postsecondary) educational institution. An individual may
contribute to an educational IRA for the benefit of a child under 18 years old
if the individual's income does not exceed certain limits. The maximum
contribution for the benefit of any one child is $500 per year. Contributions
are not deductible, but earnings accumulate tax-free until withdrawal, and
withdrawals used to pay qualified higher education expenses of the beneficiary
(or transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers under which
an employer may establish IRA accounts for its employees in lieu of establishing
more complicated retirement plans, such as qualified profit sharing or 401(k)
plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE IRAs, they
permit employers to maintain a retirement program for their employees without
being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
Please call your employer to obtain information regarding the establishment of
IRAs or other retirement plans. A retirement plan custodian may charge fees in
connection with establishing and maintaining the plan. An investor should
consult with a competent advisor for specific advice concerning his or her tax
status and the possible benefits of establishing one or more retirement plan
accounts. The description above is only very general; there are numerous other
rules applicable to these plans to be considered before establishing one.
PERFORMANCE
A Fund 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 each class. Each of these figures is
based upon historical results and is not representative of the future
performance of any class of a Fund. A Fund with fees or expenses being waived or
absorbed by Scudder Kemper may also advertise performance information before and
after the effect of the fee waiver or expense absorption.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the SEC. The average annual total
return for a Fund for a specific period is found by first taking a hypothetical
$1,000 investment ("initial investment") in the Fund's shares on the first day
of the period, adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "redeemable value" of that investment at the
end of the period. The redeemable value in the case of Class B and Class C
shares may or may not include the effect of the applicable contingent deferred
sales charge that may be imposed at the end of the period. The redeemable value
is then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted from
the result, which is then expressed as a percentage. The calculation assumes
that all income and capital gains dividends paid by a Fund have been reinvested
at net asset value on the reinvestment dates during the period. Average annual
total return may also be calculated without adjusting to deduct the maximum
sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the "Financial Highlights" table in the
Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in a Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
49
<PAGE>
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.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Standard &
Poor's/Barra Value Index, the Russell 1000 Value Index and the Russell 2000
Value Index. The performance of a Fund may also be compared to the combined
performance of two indexes. The performance of a Fund may also be compared to
the performance of other mutual funds or mutual fund indexes with similar
objectives and policies as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper performance
calculations are based upon changes in net asset value with all dividends
reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(Infinity) or various certificate of deposit
indexes. Money market fund performance may be based upon, among other things,
the IBC Financial Data, Inc.'s Money Fund Report(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.
The figures below show performance information for various periods for each
Fund. Comparative information for certain indices is also included. Please note
the differences and similarities between the investments which a Fund may
purchase and the investments measured by the applicable indices. The net asset
values and returns of each class of shares of the Funds will also fluctuate. No
adjustment has been made for taxes payable on dividends. The periods indicated
were ones of fluctuating securities prices and interest rates.
50
<PAGE>
CONTRARIAN FUND -- NOVEMBER 30, 1999
AVERAGE
ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ----------- -------- -------- --------
Life of Class (+) xx.xx% xx.xx% xx.xx%
Ten Years xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx%
Three Years xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
(+) Since March 18, 1988 for Class A shares. Since September 11, 1995 for Class
B and Class C shares.
N/A -Not Available.
Financial Services FUND -- NOVEMBER 30, 1999
AVERAGE
ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) xx.xx% xx.xx% xx.xx%
Ten Years xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx%
Three Years xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
HIGH RETURN EQUITY FUND -- NOVEMBER 30, 1999
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) xx.xx% xx.xx% xx.xx%
Ten Years xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx%
Three Years xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
(+) Since March 18, 1988 for class A shares. Since September 11, 1995 for Class
B and Class C shares.
N/A - Not Available.
SMALL CAP VALUE FUND -- NOVEMBER 30, 1999
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx%
Three Years xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
(+) Since May 22, 1992 for Class A shares. Since
September 11, 1995 for Class B and Class C shares.
N/A - Not Available.
SMALL CAP RELATIVE VALUE FUND -- September 30, 1999
AVERAGE ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
51
<PAGE>
Life of Fund (+) xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
(+) Since May 6, 1998 for Class A, B, and C shares.
U.S. Growth and Income Fund -- NOVEMBER 30, 1999
AVERAGE
ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) xx.xx% xx.xx% xx.xx%
Ten Years xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx%
Three Years xx.xx% xx.xx% xx.xx%
One Year xx.xx% xx.xx% xx.xx%
Value FUND -- NOVEMBER 30, 1999
AVERAGE
ANNUAL TOTAL Fund Class Fund Class Fund Class
RETURN TABLE A Shares B Shares C Shares
- ------------ -------- -------- --------
Life of Class (+) 14.83% 15.81% 16.01%
Ten Years xx.xx% xx.xx% xx.xx%
Five Years 14.70% 15.83% 16.07%
Three Years xx.xx% xx.xx% xx.xx%
One Year -7.71% -5.02% -2.08%
FOOTNOTES FOR ALL FUNDS
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.
OFFICERS AND BOARD MEMBERS
The officers and Board members of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with the Advisor and Kemper
Distributors, Inc. ("KDI"), or their affiliates are listed below. All persons
named as Board members also serve in similar capacities for other funds advised
by Scudder Kemper Investments, Inc.
<TABLE>
<CAPTION>
All Funds except Value Fund:
- ----------------------------
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Fund Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
<S> <C> <C> <C>
JAMES E. AKINS (10/15/26) Board Member, Consultant on International, ----
2904 Garfield Terrace N.W. Director of Political and Economic Affairs;
Washington, D.C.; KVAL,Trustee of formerly, a career United States
Securities Trust Foreign Service Officer;
Energy Adviser for the White
House; United States Ambassador
to Saudi Arabia, 1973-1976.
52
<PAGE>
All Funds except Value Fund:
- ----------------------------
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Fund Occupation** Services, Inc.
- --------------------- --------- ------------ --------------
JAMES R. EDGAR (07/22/46) Trustee Distinguished Fellow, Institute ----
1927 County Road, 150E, of Government and Public
Seymour, Illinois; Affairs, University of Illinois;
Director, Kemper Insurance
Companies; formerly, Governor of
the State of Illinois, 1991-1999.
ARTHUR R. GOTTSCHALK Trustee Retired; formerly, President, ----
(2/13/25) Illinois Manufacturers
10642 Brookridge Drive, Association; Trustee, Illinois
Frankfort,Illinois; Masonic Medical Center;
formerly, Illinois State
Senator; formerly, Vice
President, The Reuben H.
Donnelley Corp.; formerly,
attorney.
FREDERICK T. KELSEY Trustee Retired; formerly, consultant to --
(4/25/27) Goldman, Sachs & Co.; formerly,
4010 Arbor Lane, Unit 102, President, Treasurer and Trustee
Northfield, Illinois; of Institutional Liquid Assets
and its affiliated mutual funds;
Trustee of Northern
Institutional; formerly, Trustee
of the Pilot Funds.
THOMAS W. LITTAUER Vice President* Managing Director, Scudder --
(4/26/55)## Kemper.
FRED B. RENWICK (2/1/30) Trustee Professor of Finance, New York --
3 Hanover Square, University, Stern School of
New York, New York Business; Director, TIFF
Industrial Program, Inc.;
Director, The Wartburg Home
Foundation; Chairman, Investment
Committee of Morehouse College
Board of Trustees; Chairman,
American Bible Society
Investment Committee; formerly,
member of the Investment
Committee of Atlanta University
Board of Trustees; formerly,
Director of Board of Pensions,
Evangelical Lutheran Church of
America.
53
<PAGE>
All Funds except Value Fund:
- ----------------------------
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Fund Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
JOHN G. WEITHERS (8/8/33) Trustee Retired; formerly, Chairman of --
311 Spring Lake, the Board and Chief Executive
Hinsdale, Illinois; 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* Managing Director, Scudder
Kemper.
PHILIP J. COLLORA Vice President, Senior Vice President, Scudder
(11/15/45)## Treasurer and Kemper
Secretary
ANN M. McCREARY (11/6/56) Vice President Managing Director, Scudder
++ Kemper.
KATHRYN L. QUIRK Vice President* Managing Director, Scudder
(12/3/52)++ Trustee for Kemper Kemper.
Equity Trust and
Kemper Securities
Trust
LINDA J. WONDRACK Vice President Senior Vice President, Scudder
(9/12/64)+ Kemper.
JOHN R. HEBBLE (6/27/58)+ Treasurer Senior Vice President, Scudder --
Kemper.
MAUREEN E. KANE Assistant Secretary Vice President, Scudder Kemper. --
(2/14/62)+
BRENDA LYONS (2/21/63)+ Assistant Treasurer Senior Vice President, Scudder --
Kemper.
CAROLINE PEARSON (4/1/62)+ Assistant Secretary Senior Vice President, --
Advisor; formerly, Associate,
Dechert Price & Rhoads (law
firm) 1989 to 1997
54
<PAGE>
All Funds except Value Fund:
- ----------------------------
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Fund Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
THOMAS F. SASSI (11/7/42) Vice President Managing Director, Scudder --
++ Kemper Value Kemper; formerly, consultant
Series, Inc. only: with an unaffiliated investment
consulting firm and an officer
of an unaffiliated investment
banking firm from 1993 to 1996
JAMES M. EYSENBACH Vice President Senior Vice President, --
(4/1/62)@ Kemper Securities Advisor.
Trust only:
LORI J. ENSINGER (12/12/61) Vice President Senior Vice President, Scudder --
++ Kemper Securities Kemper.
Trust only:
Value Fund only: Position with
- ---------------- Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
Lynn S. Birdsong (52)*#++ President and Managing Director of Scudder Senior Vice President
Trustee Kemper Investments, Inc.
Paul Bancroft III (68) Trustee Venture Capitalist and --
79 Pine Lane Consultant; Retired President,
Box 6639 Chief Executive Officer and
Snowmass Village, CO 81615 Director, Bessemer Securities
Corporation
Sheryle J. Bolton (52) Trustee Chief Executive Officer and --
Scientific Learning Corporation Director, Scientific Learning
1995 University Ave Corporation, Former President
Suite 400 and Chief Operating Officer,
San Francisco, CA 94704 Physicians Online, Inc.
(electronic transmission of
clinical information for
physicians (1994-1995); Member,
Senior Management Team,
Rockefeller & Co. (1990-1993)
55
<PAGE>
Value Fund only: Position with
- ---------------- Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
William T. Burgin (55) Trustee General Partner, Bessemer --
83 Walnut Street Venture Partners; General
Wellesley, MA 02481-2101 Partner, Deer & Company;
Director, James River Corp.;
Director Galile Corp., Director
of various privately held
companies
Keith R. Fox (44) Trustee Private Equity Investor, Exeter --
Exeter Capital Management Corporation Capital Management Corporation
10 East 53rd Street
New York, NY 10022
William H. Luers (69) Trustee President, The Metropolitan
The Metropolitan Museum of Art Museum of Art (1986 to present)
1000 Fifth Avenue
New York, NY 10028
Kathryn L. Quirk (45)*#++ Trustee, Vice Managing Director of Scudder Senior Vice President,
President and Kemper Investments, Inc. Chief Legal Officer and
Assistant Secretary Assistant Clerk
Joan E. Spero (54) Trustee President, The Doris Duke __
Doris Duke Charitable Foundation Charitable Foundation (1997 to
650 Fifth Avenue - 19th Floor present), Undersecretary of
New York, NY 10019 State for Economic, Business and
Agricultural Affairs, (1993-1997)
Thomas J. Devine (71) Honorary Trustee Consultant __
450 Park Avenue
New York, NY 10022
Wilson Nolen (71) Honorary Trustee Consultant, June 1989 to
1120 Fifth Avenue present, Corporate Vice
New York, NY 10128-0144 President of Becton, Dickinson &
Company (manufacturer of medical
and scientific products),
from 1973 to June 1989
Robert G. Stone, Jr. (75) Honorary Trustee Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
39th Floor offshore marine transportation
New York, NY 10174 and diesel repairs)
Donald E. Hall (46)@ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
56
<PAGE>
Value Fund only: Position with
- ---------------- Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
- --------------------- ---------- ------------ --------------
Ann M. McCreary( 48)++ Vice President Managing Director of Scudder __
Kemper Investments, Inc.
Kathleen T. Millard (37)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John Millette (37) Vice President and Assistant Vice President of
Secretary Scudder Kemper Investments, Inc.
since September 1994; previously
employed by the law firm Kaye,
Scholer, Fierman, Hays & Handler
John R. Hebble (40)+ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Caroline Pearson (36)+ Assistant Secretary Senior Vice President of Scudder --
Kemper Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989-1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the
Trust and its counsel to be persons who are
"interested persons" of the Advisor or of the Trust
(within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Mr. Birdsong and Ms. Quirk are members of the
Executive Committee, which may exercise all of the
powers of the Trustees when they are not in session.
## Address: 222 South Riverside Plaza, Chicago, Illinois.
+ Address: Two International Place, Boston,
Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles,
California
* "Interested persons" as defined in the 1940 Act.
The Board members and officers who are "interested persons" as
designated above receive no compensation from the Funds. The table below shows
amounts from Kemper Value Series, Inc. ("KVAL") paid or accrued to those
directors who are not designated "interested persons" during the fiscal period
January 1, 1999 through November 30, 1999. The table below also shows amounts
from Kemper Securities Trust (the "Trust"), including amounts from Small Cap
Relative Value Fund and U.S.Growth and Income Fund, paid or accrued to such
trustees for the fiscal period ended September 30, 1999. The total compensation
from the Kemper Fund complex is for the 1999 calendar year.
<TABLE>
<CAPTION>
Kemper Small Cap High
Financial Equity Relative Return Kemper Securities
Name of Trustee Services Trust Value Equity Trust
--------------- -------- ----- ----- ------ -----
57
<PAGE>
Kemper Small Cap High
Financial Equity Relative Return Kemper Securities
Name of Trustee Services Trust Value Equity Trust
--------------- -------- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
James E. Akins
James R. Edgar
Arthur R. Gottschalk
Frederick T. Kelsey
Fred B. Renwick
John G. Weithers
Kemper Total
Value Compensation
Contrarian High Return Small Cap Series Kemper Funds Paid
Name of Trustee Fund Equity Value Trust to Trustees**
- --------------- ---- ------ ----- ----- -------------
James E. Akins
James R. Edgar
Arthur R. Gottschalk
Frederick T. Kelsey
Fred B. Renwick
John G. Weithers
Includes compensation for service on the boards of 15 Kemper funds with 53 fund
portfolios. Each board member currently serves as a board member of 15 Kemper
Funds with 53 fund portfolios.
Value Equity Trust* All Scudder Funds
------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Advisor(1) the Funds The Advisor(1)
- ---- --------- --------------- --------- ---------------
Paul Bancroft III, Trustee $14,750 $850 $174,200 (23 $ 8,925 (23 funds)
funds)
Sheryle J. Bolton, $14,750 $0.00 $149,050 $0.00 (23 funds)
Trustee** (23 funds)
58
<PAGE>
Value Equity Trust* All Scudder Funds
------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Advisor(1) the Funds The Advisor(1)
- ---- --------- --------------- --------- ---------------
William T. Burgin, $14,750 $850 $150,950 $8,925 (23 funds)
Trustee (23 funds)
Thomas J. Devine, $16,650 $850 $178,000 $8,925 (24 funds)
Honorary Trustee+ (24 funds)
Keith R. Fox, $17,150 $850 $172,350 $8,925 (21 funds)
Trustee (21 funds)
William H. Luers, $13,250 $850 $157,050 $8,925 (24 funds)
Trustee** (24 funds)
Wilson Nolen, $14,750 $850 $189,075 $6,375 (24 funds)
Honorary Trustee+ (24 funds)
Joan E. Spero,*** $2,685 $0.00 $29,736 $0.00 (21 funds)
Trustee (21 funds)
Robert G. Stone, Jr. $0.00 $0.00 $8,000# $0.00 (1 fund)
Honorary Trustee (1 fund)
</TABLE>
(1) The Advisor paid the compensation to the Trustees for meetings
associated with the Advisor's alliance with Zurich Insurance Company.
See "Investment Advisor" for additional information.
* Value Equity Trust consists of two funds: Scudder
Large Company Value Fund and Value Fund.
** Elected as Trustee of the Trust in October 1997.
*** Elected as Trustee of the Trust in September 1998.
+ Elected as an Honorary Trustee in December 1998,
after serving as a Trustee.
# Includes pension or retirement benefits received as
Director of The Japan Fund.
Members of the Board of Trustees who are employees of the Advisor or
its affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Advisor, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
Principal Holders of Securities
As of December 31, 1999 the officers and Board members as a group owned less
than 1% of each Fund, and the following owned of record more than 5% of the
outstanding stock of the funds, as set forth below.
Kemper Small Cap Relative Value Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Kemper Investments, Inc. A 18.95
345 Park Avenue
New York, NY 10154
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
59
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
National Financial Sercives Corp. A 12.82
FBO Gary Gainspoletti, TTEE
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette A 13.81
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
First Union Securities A 8.61
Commission Accounting
77 W. Wacker Drive
Chicago, IL 60601
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Prudential Securities Inc. A 9.01
FBO DIMA Ventures Inc.
4199 Campus Drive
Irvine, CA 92612
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 16.62
FBO Timothy Grace
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 26.15
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & B 12.86
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 9.04
Omnibus Acocunt
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 5.79
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
PaineWebber C
FBO Sharon & Leonard Lavinson,
JTWROS
301 Iris Road
Cherry Hill, NJ 08003
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Weiland Precision Machin Inc, 401K C
FBO Charles Weiland, TTEE
34678 Hickory Lane
Wildomar, CA 92595
- ------------------------------------- ----------------------- ------------------
60
<PAGE>
Kemper Value Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 5.34
FBO Janet Garvey
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette A 6.88
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 10.30
FBO Mina Slusher, TTEE
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 13.00
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 6.60
FBO Francea Downs, TTEE
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 8.24
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
Kemper-Dreman Financial Services Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette A 13.94
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 11.21
FBO Melissa & Kevin Krivohlavek
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Olde Discount A 5.32
751 Griswold Street
Detroit, MI 48226
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
61
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 10.99
FBO Stanley Sulc
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 15.77
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & B 5.61
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
First Union Securities B 8.97
Commission Accounting
77 W. Wacker Drive
Chicago, IL 60601
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 5.86
FBO Tracy & Kathleen Carroll
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 16.28
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & C 9.50
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
Kemper Contrarian Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Trust Company A 12.97
FBO Angelo Lafrate Construction Co.
&
Angelo's Crushed Concrete 401K
P.O. Box 957
Salem, NH 03079
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 8.04
FBO Anthony Lentine, TTEE
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
62
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 8.23
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 8.38
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & C 13.29
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
Kemper-Dreman High Return Equity Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 8.51
FBO Shirley Hori
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette A 7.03
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 12.13
FBO Samuel Shaver
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 11.10
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & B 6.21
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 8.55
FBO Gloria Montero
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
63
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 8.15
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & C 14.58
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 5.90
FBO Shirley Baumann
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Kemper Investments I 17.37
Money Purchase Plan
345 Park Avenue
New York, NY 10154
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Kemper Investments I 64.58
Profit Sharing Plan
345 Park Avenue
New York, NY 10154
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Kemper Small Cap Value Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 6.19
FBO Susan & John Shaw
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 7.01
FBO Susan & John Shaw
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 10.87
FBO Marth McDaniel
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 10.28
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
64
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & B 9.05
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 5.90
FBO Shirley Baumann
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 7.67
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & C 22.46
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Kemper Investments I 19.42
Money Purchase Plan
345 Park Avenue
New York, NY 10154
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Scudder Kemper Investments I 67.15
Profit Sharing Plan
345 Park Avenue
New York, NY 10154
- ------------------------------------- ----------------------- ------------------
Kemper U.S Growth & Income Fund
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. A 5.87
FBO Melissa & Kevin Krivohlavek
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Raymond James & Associates A 6.88
P.O. Box 12749
St. Petersburg, FL 33733
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. B 12.00
FBO Marth Stevenson
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
65
<PAGE>
- ------------------------------------- ----------------------- ------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette B 8.33
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
National Financial Services Corp. C 5.30
FBO Irvong Rossoff
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Donaldson, Lufkin & Jenrette C 5.96
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------- ------------------
- ------------------------------------- ----------------------- ------------------
Merrill, Lynch, Pierce, Fenner & C 6.80
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------- ------------------
Kemper Value Fund
As of December 31, 1999, 5.34% of the outstanding Kemper Class A shares
of the Fund were held in the name of National Financial Services Corp., for the
benefit of Janet Garvey, 200 Liberty Street, New York, NY 10281, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of December 31, 1999, 6.88% of the outstanding Kemper Class A shares
of the Fund were held in the name of Donaldson, Lufkin & Jenrette Securities
Corp., P.O. Box 2052, Jersey City, NJ 07303, who may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of December 31, 1999, 10.30% of the outstanding Kemper Class B
shares of the Fund were held in the name of National Financial Services Corp.,
for the benefit of Mina Slusher, 200 Liberty Street, New York, NY 10281, who may
be deemed to be the beneficial owner of certain of these shares, but disclaims
any beneficial ownership therein.
As of December 31, 1999, 13.00% of the outstanding Kemper Class B
shares of the Fund were held in the name of Donaldson, Lufkin & Jenrette
Securities Corp., P.O. Box 2052, Jersey City, NJ 07303, who may be deemed to be
the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
As of December 31, 1999, 6.60% of the outstanding Kemper Class C shares
of the Fund were held in the name of National Financial Services Corp., for the
benefit of Frances Downs, 200 Liberty Street, New York, NY 10281, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of December 31, 1999, 8.24% of the outstanding Kemper Class C shares
of the Fund were held in the name of Donaldson, Lufkin & Jenrette Securities
Corp., P.O. Box 2052, Jersey City, NJ 07303, who may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.
SHAREHOLDER RIGHTS
The Contrarian, High Return Equity and Small Cap Value Funds are each a series
of Kemper Value Series, Inc. ("KVS"). KVS was organized as a Maryland
corporation in October, 1987 and has an authorized capitalization of
3,000,000,000 shares of $.01 par value common stock. In March, 1998, KVS changed
its name from Kemper Value Fund, Inc. to Kemper Value Series, Inc. and in July,
1997, KVS changed its name from Kemper-Dreman Fund, Inc. to Kemper Value Fund,
Inc. In
66
<PAGE>
September, 1995, KVS changed its name from Dreman Mutual Group, Inc. to
Kemper-Dreman Fund, Inc. The Small Cap Relative Value Fund and U.S. Growth and
Income Fund are each a series of Kemper Securities Trust formerly known as
Kemper Growth and Income Fund) ("KST"). KST was organized as a business trust
under the laws of Massachusetts on October 2, 1997. Financial Services Fund is a
series of Kemper Equity Trust ("KET"). KET was organized as a business trust
under the laws of Massachusetts on January 6, 1998. Value Fund is a series of
Value Equity Trust ("VET", and together with KST and VET, the "Trusts"). VET was
organized as a business trust under the laws of Massachusetts on October 16,
1985. VET's predecessor was organized as a Delaware corporation in May 1966. The
Trusts may issue an unlimited number of shares of beneficial interest in one or
more series, all having a par value of $.01, which may be divided by the Board
into classes of shares. Since KVS and the Trusts may offer multiple funds, each
is known as a "series company." Currently, KVS offers four classes of shares of
each Fund. These are Class A, Class B and Class C shares, as well as Class I
shares, which have different expenses, that may affect performance, and are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of the Advisor and its affiliates; and (b) the following
investment advisory clients of the Advisor 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. Currently, the Trusts offer three
classes of shares --Class A, Class B and Class C shares. The Board may authorize
the issuance of additional classes and additional Funds if deemed desirable,
each with its own investment objectives, policies and restrictions. Shares of a
Fund have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to the Rule 12b-1
Plan. Shares of each class also have equal rights with respect to dividends,
assets and liquidation of such Fund subject to any preferences (such as
resulting from different Rule 12b-1 distribution fees), rights or privileges of
any classes of shares of the Fund. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Board of Directors of KVS and the Boards of
Trustees of the Trusts may, to the extent permitted by applicable law, have the
right at any time to redeem from any shareholder, or from all shareholders, all
or any part of any series or class, or of all series or classes, of the shares
of KVS and the Trust.
The Funds' activities are supervised by KVS' or the Trusts' Boards of Directors
or Trustees, as applicable.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
67
<PAGE>
The Funds are not required to hold annual shareholder meetings and do not intend
to do so. However, they will hold special meetings as required or deemed
desirable for such purposes as electing Board members, changing fundamental
policies or approving an investment management agreement. KVS will call a
meeting of shareholders, if requested to do so by the holders of at least 10% of
KVS's outstanding shares. In the case of a meeting called to consider removal of
a Board member or Board members, KVS or the Trust will assist in communications
with other shareholders as required by Section 16(c) of the 1940 Act. 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 1940 Act, such as for the election of Board members, or when voting by class
is appropriate. The Trusts are not required to hold and have no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment management contract.
Subject to the Declarations of Trust and By Laws of the Trusts, shareholders may
remove Trustees. Shareholders will be assisted in communicating with other
shareholders in connection with removing a Trustee as if Section 16(c) of the
1940 Act were applicable. Under the Agreement and Declaration of Trust of each
Trust, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval by shareholders is
required by the 1940 Act; (c) any termination of a Fund or a class to the extent
and as provided in the Declaration of Trust; (d) any amendment of a Declaration
of Trust (other than amendments changing the name of a Fund, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); and (e) such additional matters as
may be required by law, the Declarations of Trust, the By-laws of the Trusts, or
any registration of a Fund with the Securities and Exchange Commission or any
state, or as the trustees may consider necessary or desirable. The shareholders
also would vote upon changes in fundamental policies or restrictions.
The Trusts' Declaration of Trust specifically authorizes the Board of Trustees
to terminate a Fund or any class by notice to the shareholders without
shareholder approval.
Each Trust may issue an unlimited number of shares of beneficial interest in one
or more series or Funds, all having a par value of $.01, which may be divided by
the Board of Trustees into classes of shares. The Board of Trustees of each
trust may authorize the issuance of additional classes and additional Funds if
deemed desirable, each with its own investment objective, policies and
restrictions. Since each Trust may offer multiple Portfolios, they are known as
a "series company." Currently, each Trust offers three classes of shares of the
Fund. These are Class A, Class B and Class C . VET also offers Scudder shares of
Value Fund. 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 each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of the Fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the Fund.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. If shares of more than
one 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
1940 Act, such as for the election of trustees, or when voting by class is
appropriate.
Master/Feeder Structure. The Board of Directors or Trustees of KVS and the
Trusts may determine, without further shareholder approval, in the future that
the objectives of the Funds would be achieved more effectively by investing in a
master fund in a master/feeder fund structure. A master/feeder fund structure is
one in which a fund (a "feeder fund"), instead of investing directly in a
portfolio of securities, invests all of its investment assets in a separate
registered investment company (the "master fund") with substantially the same
investment objective and policies as the feeder fund. Such a structure permits
the pooling of assets of two or more feeder funds in the master fund in an
effort to achieve possible economies of scale and efficiencies in portfolio
management, while preserving separate identities, management or distribution
channels at the feeder fund level. An existing investment company is able to
convert to a feeder fund by selling all of its investments, which involves
brokerage and other transaction costs and the realization of taxable gains or
loss, or by contributing its assets to the master fund and avoiding transaction
costs and the realization of taxable gain or loss.
68
<PAGE>
APPENDIX -- RATINGS OF INVESTMENTS
The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal bonds are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged to
be of the "best quality." The rating of Aa is assigned to municipal bonds which
are of "high quality by all standards," but as to which margins of protection or
other elements make long-term risks appear somewhat larger than Aaa rated
municipal bonds. The Aaa and Aa rated municipal bonds comprise what are
generally known as "high grade bonds." Municipal bonds which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Municipal
bonds which are rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest coverage and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Municipal bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Municipal
bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Municipal
bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Municipal bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Municipal bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
The four highest ratings of Standard & Poor's Corporation ("S&P") for municipal
bonds are AAA, AA, A and BBB. Municipal bonds rated AAA have the highest rating
assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in
small degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this capacity than for bonds in higher rated categories. Municipal
bonds rated BB, B, CCC, CC or C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. The rating CI is
reserved for income bonds on which no interest is being paid. Bonds rated D are
in default and payment of interest and/or repayment of principal is in arrears.
The four highest ratings of Fitch Investors Service, Inc. ("Fitch") for
municipal bonds are AAA, AA, A and BBB. Municipal bonds rated AAA are considered
to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA are
considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+. Bonds rated A are considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. Bonds rated BB are considered
speculative. The obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in satisfying its
debt service requirements. Bonds rated B are considered highly speculative.
While bonds in this class are currently meeting debt service requirements, the
probability of continued timely
69
<PAGE>
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. Bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment. Bonds rated CC are
minimally protected. Default in payment of interest and/or principal seems
probable over time. Bonds rated C are in imminent default in payment of interest
or principal. Bonds rated DDD, DD and D are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
The four highest ratings of Duff & Phelps Credit Rating Co. ("Duff") for
municipal bonds are AAA, AA, A and BBB. Bonds rated AAA have the highest rating
assigned by Duff to a debt obligation. They are of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions. Bonds rated A have protection factors that are
average but adequate. However, risk factors are more variable and greater in
periods of economic stress. Bonds rated BBB have below average protection
factors but are still considered sufficient for prudent investment. They have
considerable volatility in risk during economic cycles. Bonds rated BB are below
investment grade but deemed likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category. Bonds rated B are below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade. Bonds rated CCC are well
below investment grade securities. Considerable uncertainty exists as to timely
payment of principal or interest. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or with
unfavorable company developments. Bonds rated D are in default. The issuer
failed to meet scheduled principal and/or interest payments.
The "debt securities" included in the discussions of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA, AA or A by S&P
or Aaa, Aa or A by Moody's. Corporate debt obligations rated AAA by S&P are
"highest grade obligations." Obligations bearing the rating of AA also qualify
as "high grade obligations" and "in the majority of instances differ from AAA
issues only in small degree." Corporate debt obligations rated A by S&P are
regarded as "upper medium grade" and have "considerable investment strength, but
are not entirely free from adverse effects of changes in economic and trade
conditions." The Moody's corporate debt ratings of Aaa, Aa and A do not differ
materially from those set forth above for municipal bonds.
Taxable or tax-exempt commercial paper ratings of A-1 or A-2 by S&P and P-1 or
P-2 by Moody's are the highest paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
Subsequent to its purchase by a Fund, an issue of Municipal Securities or a
temporary investment may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but KFS will consider
such an event in its determination of whether the Fund should continue to hold
such obligation in its portfolio. To the extent that the ratings accorded by
S&P, Moody's, Fitch or Duff for municipal bonds or temporary investments may
change as a result of changes in such organizations, or changes in their rating
systems, the Fund will attempt to use comparable ratings as standards for its
investments in municipal bonds or temporary investments in accordance with the
investment policies contained herein.
70
<PAGE>
KEMPER VALUE SERIES, INC.
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C>
(a) (a)(1) Articles of Incorporation of Registrant is incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.
(a)(2) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(3) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(4) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(5) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(6) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(7) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(8) Articles of Amendment to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
(a)(9) Articles of Amendment to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.
(a)(10) Articles Supplementary to Articles of Incorporation of Registrant
is incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.
(b) By-laws is incorporated by reference to Post-Effective Amendment No. 21 to
the Registration Statement.
(c) Inapplicable.
(d) (d)(1) Investment Management Agreement between the Registrant, on behalf of Kemper
Contrarian Fund and Scudder Kemper Investments, Inc. dated September 7, 1998
is incorporated by reference to Post-Effective Amendment
1
<PAGE>
No. 23 to the Registration Statement.
(d)(2) Investment Management Agreement between the Registrant, on behalf of
Kemper-Dreman High Return Equity Fund and Scudder Kemper Investments, Inc.
dated September 7, 1998 is incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.
(d)(3) Investment Management Agreement between the Registrant, on behalf of Kemper
Small Cap Value Fund and Scudder Kemper Investments, Inc. dated September 7,
1998 is incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.
(d)(4) Sub-Advisory Agreement between Scudder Kemper Investments, Inc. and Dreman
Value Management, L.L.C. dated September 7, 1998 (Kemper-Dreman High Return
Equity Fund) is incorporated by reference to Post-Effective Amendment No. 23
to the Registration Statement.
(e) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc. dated October 1, 1999 is filed herein.
(f) Selling Group Agreement is incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.
(g) (g)(1) Custodian Agreement between the Registrant, on behalf of Kemper Value Fund,
Inc., and Investors Fiduciary Trust Company is incorporated by reference to
Post-Effective Amendment No. 14 to the Registration Statement
(g)(2) Amendment to Custody Contract between the Registrant and State Street Bank
dated March 31, 1999 is filed herein.
(h) (h)(1) Agency Agreement is incorporated by reference to Post-Effective Amendment
No. 14 to the Registration Statement.
(h)(2) Supplement to Agency Agreement between Registrant and Investors Fiduciary
Trust Company dated June 1, 1997 is incorporated by reference to
Post-Effective Amendment No. 21 to the Registration Statement.
(h)(3) Administrative Services Agreement between the Registrant and Kemper
Distributors, Inc. dated April 1, 1997 is incorporated by reference to
Post-Effective Amendment No. 21 to the Registration Statement.
(h)(4) Amended Fee Schedule For Administrative Services Agreement between the
Registrant and Kemper Distributors, Inc. dated January 1, 2000 is filed
herein.
(h)(5) Fund Accounting Agreement between Kemper Contrarian Fund and Scudder Fund
Accounting Corporation dated December 31, 1997 is incorporated by reference
to Post-Effective Amendment No. 21 to the Registration Statement.
(h)(6) Fund Accounting Agreement between Kemper-Dreman High Return Equity Fund and
Scudder Fund Accounting Corporation dated December 31, 1997 is incorporated
by reference to Post-Effective Amendment No. 21 to the Registration
Statement.
2
<PAGE>
(h)(7) Fund Accounting Agreement between Kemper Small Cap Value Fund and Scudder
Fund Accounting Corporation dated December 31, 1997 is incorporated by
reference to Post-Effective Amendment No. 21 to the Registration Statement.
(i) Legal Opinion and Consent of Counsel is filed herein.
(j) Consent of Independent Auditors is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) (m)(1) Rule 12b-1 Plan between Kemper Contrarian Fund (Class B Shares) and Kemper
Distributors, Inc., dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 23 to the Registration Statement.
(m)(2) Rule 12b-1 Plan between Kemper Contrarian Fund (Class C Shares) and Kemper
Distributors, Inc., dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 23 to the Registration Statement.
(m)(3) Rule 12b-1 Plan between Kemper-Dreman High Return Equity Fund (Class B
Shares) and Kemper Distributors, Inc., dated September 7, 1998 is
incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.
(m)(4) Rule 12b-1 Plan between Kemper-Dreman High Return Equity Fund (Class C
Shares) and Kemper Distributors, Inc., dated September 7, 1998 is
incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.
(m)(5) Rule 12b-1 Plan between Kemper Small Cap Value Fund (Class B Shares) and
Kemper Distributors, Inc., dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 23 to the Registration Statement.
(m)(6) Rule 12b-1 Plan between Kemper Small Cap Value Fund (Class C Shares) and
Kemper Distributors, Inc., dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 23 to the Registration Statement.
(n) Inapplicable.
(o) Rule 18f-3 Plan is incorporated by reference to Post-Effective Amendment No.
21 to the Registration Statement.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
3
<PAGE>
The Registrant has obtained from a major insurance carrier a directors
and officers liability policy covering certain types of errors and omissions.
The Registrant's Bylaws provide for the indemnification of Registrant's officers
and directors.
However, in accordance with Section 17(h) and 17(I) of the Investment
Company Act of 1940 and its own terms under the Bylaws, in no event will
Registrant indemnify any of its directors, officers, employees or agents against
any liability to which such person would otherwise be subject by reason of his
willful misfeasance, bad faith, gross negligence in the performance of his
duties or by reason of his reckless disregard of the duties involved in the
conduct of his or her office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the directors' evaluation of
the Transaction, Zurich agreed to indemnify the Registrant and the directors who
were not interested persons of ZKI or Scudder (the "Independent Directors") for
and against any liability and expenses based upon any action or omission by the
Independent Directors in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Directors for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Directors in connection with their consideration of the Transaction.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
4
<PAGE>
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
X 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
5
<PAGE>
*** Toronto, Ontario, Canada
Oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
Xx 222 S. Riverside, Chicago, IL
O Zurich Towers, 1400 American Ln., Schaumburg, IL
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer Trustee and Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
6
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 31st day
of January, 2000.
By: /s/ Mark S. Casady
------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 31st day of January, 2000 on
behalf of the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/ Thomas W. Littauer Chairman and Trustee
- --------------------------------------
Thomas W. Littauer*
/s/ James E. Akins Trustee
- --------------------------------------
James E. Akins*
/s/ James R. Edgar Trustee
- --------------------------------------
James R. Edgar*
/s/ Arthur R. Gottschalk Trustee
- --------------------------------------
Arthur R. Gottschalk*
/s/ Frederick T. Kelsey Trustee
- --------------------------------------
Frederick T. Kelsey*
/s/ Fred B. Renwick Trustee
- --------------------------------------
Fred B. Renwick*
/s/ John G. Weithers Trustee
- --------------------------------------
John G. Weithers*
/s/ John R. Hebble Treasurer (Principal Financial
- -------------------------------------- and Accounting Officer)
John R. Hebble
*By: /s/ Philip J. Collora
---------------------
Philip J. Collora**
** Attorney-in-fact pursuant to powers of
attorney contained in the signature page of
Post-Effective Amendment No. 23 to the
Registration Statement, filed January 30, 1998
and Post-Effective Amendment No. 24 to the
Registration Statement, filed November 26, 1999
<PAGE>
File No. 33-18477
File No. 811-5385
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 25
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 27
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER VALUE SERIES, INC.
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KEMPER VALUE SERIES, INC.
EXHIBIT INDEX
(e)
(g)(2)
(h)(4)
(i)
(j)
2
Exhibit (e)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 1st day of October, 1999, between KEMPER VALUE SERIES, INC.,
a Maryland Corporation (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as principal underwriter of shares of
beneficial interest (hereinafter called "shares") of the Fund in jurisdictions
wherein shares of the Fund may legally be offered for sale; provided, however,
that the Fund in its absolute discretion may (a) issue or sell shares directly
to holders of shares of the Fund upon such terms and conditions and for such
consideration, if any, as it may determine, whether in connection with the
distribution of subscription or purchase rights, the payment or reinvestment of
dividends or distributions, or otherwise; (b) issue or sell shares at net asset
value to the shareholders of any other investment company, for which KDI shall
act as exclusive distributor, who wish to exchange all or a portion of their
investment in shares of such other investment company for shares of the Fund; or
(c) issue shares in connection with the merger or consolidation of any other
investment company with the Fund or the Fund's acquisition, by purchase or
otherwise, of all or substantially all of the assets of any other investment
company or all or substantially all of the outstanding shares of any such
company. KDI shall appoint various financial service firms ("Firms") to provide
distribution services to investors. The Firms shall provide such office space
and equipment, telephone facilities, personnel, literature distribution,
advertising and promotion as is necessary or beneficial for providing
information and distribution services to existing and potential clients of the
Firms. KDI may also provide some of the above services for the Fund.
KDI accepts such appointment as principal underwriter and agrees to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless expressly provided herein or otherwise
authorized, shall have no authority to act for or represent the Fund in any way.
KDI, by separate agreement with the Fund, may also serve the Fund in other
capacities. The services of KDI to the Fund under this Agreement are not to be
deemed exclusive, and KDI shall be free to render similar services or other
services to others so long as its services hereunder are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of existing and potential shareholders who may be clients of
such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on
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terms hereinafter set forth, all subject to applicable federal and state laws
and regulations and to the Fund's organizational documents, provided, however,
that KDI may in its discretion refuse to accept orders for shares from any
particular applicant.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the Fund's currently
effective registration statement, including the prospectus and statement of
additional information and any supplements or amendments thereto ("Registration
Statement"), as KDI may determine from time to time, provided that no Firm or
other person shall be appointed or authorized to act as agent of the Fund
without prior consent of the Fund. In addition to sales made by it as agent of
the Fund, KDI may, in its discretion, also sell shares of the Fund as principal
to persons with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the Registration Statement. The price the Fund shall receive for all shares
purchased from it shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess of the sales
price over the net asset value of the shares of the Fund sold by KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Registration Statement from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Registration Statement. KDI shall also receive any distribution services
fee payable by the Fund as provided in the Fund's Rule 12b-1 Plan, as amended
from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement with respect to the public offering price or net asset
value, as applicable, of the Fund's shares, and neither KDI nor any such Firms
shall withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
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5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this Agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Board member or officer of the Fund or to any
officer or Board member of KDI or of any corporation or association furnishing
investment advisory, managerial or supervisory services to the Fund, or to any
corporation or association, unless such sales are made in accordance with the
Registration Statement relating to the sale of such shares. KDI, as agent of and
for the account of the Fund, may repurchase the shares of the Fund at such
prices and upon such terms and conditions as shall be specified in the
Registration Statement. In selling or reacquiring shares of the Fund for the
account of the Fund, KDI will in all respects conform to the requirements of all
state and federal laws and the Conduct Rules of the National Association of
Securities Dealers, Inc., relating to such sale or reacquisition, as the case
may be. KDI will observe and be bound by all the provisions of the Fund's
organizational documents (and of any fundamental policies adopted by the Fund
pursuant to the Investment Company Act of 1940 (the "Investment Company Act"),
notice of which shall have been given to KDI) which at the time in any way
require, limit, restrict, prohibit or otherwise regulate any action on the part
of KDI hereunder.
KDI agrees to indemnify and hold harmless the Fund and each of its Board members
and officers and each person, if any, who controls the Fund within the meaning
of Section 15 of the Securities Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
the Fund or such Board members, officers, or controlling persons may become
subject under such Act, under any other statute, at common law or otherwise,
arising out of the acquisition of any shares by any person which (i) may be
based upon any wrongful act by KDI or any of KDI's employees or representatives,
or (ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such statement or
omission was made in reliance upon information furnished to the Fund by KDI, or
(iii) may be incurred or arise by reason of KDI's acting as the Fund's agent
instead of purchasing and reselling shares as principal in distributing the
shares to the public, provided, however, that in no case (i) is KDI's indemnity
in favor of a Board member or officer or any other person deemed to protect such
Board member or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is KDI
to be liable under the indemnity agreement contained in this paragraph with
respect to any claim made against the Fund or any person indemnified unless the
Fund or such person, as the case may be, shall have notified KDI in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such
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person (or after the Fund or such person shall have received notice of such
service on any designated agent), but failure to notify KDI of any such claim
shall not relieve KDI from any liability which KDI may have to the Fund or any
person against whom such action is brought otherwise than on account of KDI's
indemnity agreement contained in this paragraph. KDI shall be entitled to
participate, at KDI's own expense, in the defense, or, if KDI so elects, to
assume the defense of any suit brought to enforce any such liability, but if KDI
elects to assume the defense, such defense shall be conducted by counsel chosen
by KDI and satisfactory to the Fund, to its officers and Board members, or to
any controlling person or persons, defendant or defendants in the suit. In the
event that KDI elects to assume the defense of any such suit and retain such
counsel, the Fund, such officers and Board members or controlling person or
persons, defendant or defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them, but, in case KDI does not elect to
assume the defense of any such suit, KDI will reimburse the Fund, such officers
and Board members or controlling person or persons, defendant or defendants in
such suit for the reasonable fees and expenses of any counsel retained by them.
KDI agrees to notify the Fund promptly of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any shares. The
Fund shall not, without the prior written consent of KDI, effect any settlement
of any pending or threatened action, suit or proceeding in respect of which the
Fund is or could have been a party and indemnity has or could have been sought
hereunder by the Fund, unless such settlement includes an unconditional release
of KDI from all liability on claims that are the subject matter of such action,
suit or proceeding.
The Fund agrees to indemnify and hold harmless KDI and each of KDI's directors
and officers and each person, if any, who controls KDI within the meaning of
Section 15 of the Securities Act, against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which KDI or
such directors, officers or controlling persons may become subject under such
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any shares by any person which (i) may be based upon any wrongful
act by the Fund or any of its employees or representatives, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was not made
in reliance upon information furnished to KDI by the Fund; provided, however,
that in no case (i) is the Fund's indemnity in favor of a director or officer or
any other person deemed to protect such director or officer or other person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties or by reason of his reckless disregard of obligations and duties
under this Agreement or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claims made against
KDI or any such director, officer or controlling person unless KDI or such
director, officer or controlling person, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon KDI or upon such director, officer or controlling person (or after
KDI or such director, officer or controlling person shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
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indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to KDI, its directors, officers, or controlling person or
persons, defendant or defendants in the suit. In the event that the Fund elects
to assume the defense of any such suit and retain such counsel, KDI, its
directors, officers or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Fund does not elect to assume the defense of any such
suit, it will reimburse KDI or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees to notify KDI promptly
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any shares. KDI
shall not, without the prior written consent of the Fund, effect any settlement
of any pending or threatened action, suit or proceeding in respect of which
either KDI is or could have been a party and indemnity has or could have been
sought hereunder by KDI, unless such settlement includes an unconditional
release of the Fund from all liability on claims that are the subject matter of
such action, suit or proceeding.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement or
the Plan. The Fund will pay (or will enter into arrangements providing that
others will pay) all fees and expenses in connection with the registration of
the Fund and its shares under the United States securities laws and, effective
January 1, 2000, the registration and qualification of shares for sale in the
various jurisdictions in which the Fund shall determine it advisable to qualify
such shares for sale (including registering the Fund as a broker or dealer or
any officer of the Fund or other person as agent or salesman of the Fund in any
such jurisdictions) ("Blue Sky expenses"). Prior to January 1, 2000, KDI will
pay all such Blue Sky expenses. In addition, KDI will pay all expenses (other
than expenses which one or more Firms may bear pursuant to any agreement with
KDI) incident to the sale and distribution of the shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all (a)
expenses of printing and distributing any prospectus and of preparing, printing
and distributing or disseminating any other literature, advertising and selling
aids in connection with the offering of the shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), and (b) expenses of advertising in connection with such
offering.
No transfer taxes, if any, which may be payable in connection with the issue or
delivery or shares sold as herein contemplated or of the certificates for such
shares shall be borne by the Fund, and KDI will bear all such transfer taxes.
8. This Agreement shall become effective on the date hereof and shall continue
untilSeptember 30, 2000; and shall continue from year to year thereafter only so
long as such continuance is approved in the manner required by the Investment
Company Act.
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This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by KDI on sixty (60) days' written notice to the other party. The indemnity
provisions contained herein shall remain operative and in full force and effect
regardless of any termination of this Agreement. The Fund may effect termination
with respect to any class of any series of the Fund by a vote of (i) a majority
of the Board members who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan, this
Agreement, or in any other agreement related to the Plan, or (ii) a majority of
the outstanding voting securities of such series or class. Without prejudice to
any other remedies of the Fund, the Fund may terminate this Agreement at any
time immediately upon KDI's failure to fulfill any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of a
majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as set forth
in the Plan. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation earned prior to such
termination, as set forth in the Plan.
Notwithstanding anything in this Agreement to the contrary, KDI shall be
contractually bound hereunder by the terms of any publicly announced waiver of
or cap on the compensation received for its distribution services under the Plan
or by the terms of any written document provided to the Board of the Fund
announcing a waiver or cap, as if such waiver or cap were fully set forth
herein.
9. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Registration Statement, except such
supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Fund with copies of
all such material.
10. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
12. With respect to any claim by KDI for recovery of any liability of the Fund
arising hereunder allocated to a particular series or class, whether in
accordance with the express terms hereof or otherwise, KDI shall have recourse
solely against the assets of that series or class
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to satisfy such claim and shall have no recourse against the assets of any other
series or class for such purpose.
13. This Agreement shall be construed in accordance with applicable federal law
and with the laws of the State of Maryland.
14. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER VALUE SERIES, INC. ATTEST:
By: /s/Mark S. Casady /s/Maureen E. Kane
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Mark S. Casady Maureen E. Kane
President Assistant Secretary
KEMPER DISTRIBUTORS, INC. ATTEST:
By: /s/James L. Greenawalt /s/Philip J. Collora
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Title: Title: Assist Sec.
7
Exhibit (g)(2)
AMENDMENT TO CUSTODY CONTRACT
Amendment dated March 31, 1999 by and between State Street Bank and
Trust Company (the "Bank") and the Kemper Funds listed on Attachment I hereto
(each a "Fund") to the custody contract (the "Custody Contract") between the
Bank and each Fund.
WHEREAS the Bank serves as the custodian of the Fund's assets pursuant
to the Custody Contract;
WHEREAS the Fund may appoint one or more banks identified on Schedule A
attached hereto, as amended from time to time, to serve as an additional
custodian for the Fund (each, a "Repo Custodian") for the limited purpose of
engaging in tri-party repurchase agreement transactions ("Tri-party Repos");
WHEREAS the Fund may direct the Bank to make "free delivery" to one or
more Repo Custodians of cash or other assets maintained in custody by the Bank
for the Fund pursuant to the Custody Contract for purposes of engaging in
Tri-party Repos; and
WHEREAS the Bank and the Fund desire to amend the Custody Contract to
permit the Bank to make "free delivery" of cash and other assets of the Fund to
Repo Custodians from time to time;
NOW THEREFORE, the Bank and the Fund hereby agree to amend the Custody
Contract as follows:
1. Notwithstanding anything to the contrary in the Custody Contract, upon
receipt of Proper Instructions (as defined in the Custody Contract), the Bank
shall deliver cash and/or other assets of the Fund to any account identified on
Schedule A attached hereto, as amended from time to time, maintained for the
Fund by a Repo Custodian, which delivery may be made without contemporaneous
receipt by the Bank of cash or other assets in exchange therefor. Upon such
delivery of cash or other assets in accordance with such Proper Instructions,
the Bank shall have no further responsibility or obligation to the Fund as a
custodian of the Fund with respect to the cash or assets so delivered.
2. The Fund may amend Schedule A from time to time to add or delete a Repo
Custodian or change the identification of the account maintained by a Repo
Custodian for the Fund by delivering Special Instructions (as defined herein) to
the Bank. The term Special Instructions shall mean written instructions executed
by at least two officers of the Fund holding the office of Vice President or
higher. In all other respects, the Custody Contract shall remain in full force
and effect and the Bank and the Fund shall perform their respective obligations
in accordance with the terms thereof.
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EXECUTED to be effective as of the date set forth above.
KEMPER FUNDS listed on Attachment I
By: /s/ Mark S. Casady
------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
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SCHEDULE A
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Repo Custodian Banks Accounts
- -------------------- --------
Chase Manhattan Bank CHASE NYC/D644755022
Bank of New York Account #111569
Authorized Signatures:
By: /s/ Daniel Pierce By: /s/ Kathryn L. Quirk
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Title: Managing Director Title: Managing Director
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Date: March 30, 1999 Date: March 30, 1999
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*This schedule was created solely to meet the requirements under the amendment
to the custody contract relating to tri-party repurchase agreements.
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Attachment I
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Cash Equivalent Fund- Government Securities Amendment Effective 4/19/99
Cash Equivalent Fund- Money Market Amendment Effective 4/19/99
Cash Equivalent Fund- Tax Exempt Amendment Effective 5/3/99
Growth Fund of Spain
Kemper California Tax-Free Income
Kemper Strategic Income Fund
Kemper Contrarian
Kemper-Dreman Financial Services
Kemper-Dreman High Return Equity
Kemper Small Cap Value
Kemper Emerging Markets Growth
Kemper Emerging Markets Income
Kemper Europe
Kemper Florida Tax-Free Income
Kemper Growth
Kemper High Income Trust Amendment Effective 4/5/99
Kemper High Yield Amendment Effective 4/5/99
Kemper High Yield Opportunity Amendment Effective 4/5/99
Kemper Income and Capital Preservation
Kemper Intermediate Government Trust Amendment Effective 4/5/99
Kemper International
Kemper International Growth and Income
Kemper Latin America
Kemper Multi-Market Income Trust
Kemper Municipal Income Trust
Kemper New York Tax-Free Income
Kemper Ohio Tax-Free Income
Kemper Retirement Series I
Kemper Retirement Series II
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Attachment I
------------
Kemper Retirement Series III
Kemper Retirement Series IV
Kemper Retirement Series V
Kemper Retirement Series VI
Kemper Retirement Series VII
Kemper Small Cap Relative Value
Kemper Strategic Income Trust Amendment Effective 4/5/99
Kemper Strategic Municipal Income Trust
Kemper U.S. Government Securities Amendment Effective 4/5/99
Kemper Value and Growth Amendment Effective 4/19/99
Kemper Worldwide 2004
Tax-Exempt California Money Market Amendment Effective 5/3/99
Tax-Exempt New York Money Market Amendment Effective 5/3/99
Cash Account Trust-Government Amendment Effective 4/19/99
Cash Account Trust-Money Market Amendment Effective 4/19/99
Cash Account Trust-Tax-Exempt Amendment Effective 5/3/99
Investors Cash Trust-Government Amendment Effective 4/19/99
Investors Cash Trust-treasury Amendment Effective 4/19/99
Investors Florida Municipal Cash Amendment Effective 5/3/99
Investors Fund Series:
Kemper Blue Chip
Kemper Dreman Financial Services
Kemper Global Blue Chip
Kemper Global Income
Kemper Government Securities Amendment Effective 4/5/99
Kemper Growth
Kemper High Yield Amendment Effective 4/5/99
Kemper Horizon 5
Kemper Horizon 10
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Attachment I
Kemper Horizon 20
Kemper International
Kemper International Growth and Income
Kemper Investment Grade Bond
Kemper Money Market Amendment Effective 4/19/99
Kemper Small Cap Growth Amendment Effective 4/19/99
Kemper Small Cap Value
Kemper Total Return
Kemper Value and Growth Amendment Effective 4/19/99
Kemper Value
Dreman High Return Equity
Investors Michigan Municipal Cash Amendment Effective 5/3/99
Investors New Jersey Municipal Cash Amendment Effective 5/3/99
Investors Pennsylvania Municipal Cash Amendment Effective 5/3/99
Kemper Aggressive Growth Fund
Kemper Asian Growth
Kemper Blue Chip
Kemper Cash Reserves Amendment Effective 5/3/99
Kemper Global Blue Chip
Kemper Global Income
Kemper Horizon 5
Kemper Horizon 10
Kemper Horizon 20
Kemper Intermediate Municipal Bond
Kemper Municipal Bond
Kemper Short Term U.S. Government Amendment Effective 4/5/99
Kemper Small Capitalization Equity Amendment Effective 4/19/99
Kemper Technology
Kemper Total Return
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Attachment I
------------
Kemper U.S. Growth and Income
Kemper U.S. Mortgage Amendment Effective 4/5/99
Zurich Government Money Amendment Effective 4/19/99
Zurich Money Market Amendment Effective 4/19/99
Zurich Tax-Free Money Amendment Effective 5/3/99
Zurich YieldWise Money Amendment Effective 4/19/99
Zurich YieldWise Municipal Money Fund
Zurich YieldWise Government Money Fund
Kemper Research
Kemper Large Company Growth
Kemper High Yield II Fund
Kemper Small Cap Value & Growth
7
Exhibit (h)(4)
KEMPER VALUE SERIES, INC.
AMENDED FEE SCHEDULE FOR ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement between Kemper
Value Series, Inc. (the "Fund") and Kemper Distributors, Inc. ("KDI"), the Fund
and KDI agree that the administrative service fee will be computed at an annual
rate of .25 of 1% based upon the assets with respect to which a Firm other than
KDI provides administrative services and .15 of 1% based upon the assets with
respect to which KDI provides administrative services.
KEMPER VALUE SERIES, INC. KEMPER DISTRIBUTORS, INC.
By: /s/Mark S. Casady By: /s/James L. Greenawalt
----------------- ---------------------
Title: President Title: President
Dated: January 1, 2000
Exhibit (i)
VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
312-609-7500
FACSIMILE: 312-609-5005
A PARTNERSHIP INCLUDING VEDDER, PRICE, KAUFMAN & KAMMHOLZ, P.C.
WITH OFFICES IN CHICAGO AND NEW YORK CITY
January 27, 2000
Kemper Value Series, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being filed
by Kemper Value Series, Inc., a Maryland Corporation (the "Fund"), in connection
with the public offering from time to time of any or all of those three billion
authorized shares of common stock, par value $.01 per share ("Shares"), that
have been classified and designated as Kemper Contrarian Fund, Kemper-Dreman
High Return Equity Fund and Kemper Small Cap Value Fund (each, a "Portfolio" and
collectively, the "Portfolios"). The Shares have been further classified and
designated as Class A Shares, Class B Shares, Class C Shares and Class I Shares
(each, a "Class" and collectively, the "Classes"), as follows: 240,000,000 have
been further classified and designated as Kemper Contrarian Fund Class A Shares,
240,000,000 as Kemper Contrarian Fund Class B Shares, 60,000,000 as Kemper
Contrarian Fund Class C Shares, and 60,000,000 as Kemper Contrarian Fund Class I
Shares; 480,000,000 as Kemper-Dreman High Return Equity Fund Class A Shares,
480,000,000 as Kemper-Dreman High Return Equity Fund Class B Shares, 120,000,000
as Kemper-Dreman High Return Equity Fund Class C Shares and 120,000,000 as
Kemper-Dreman High Return Equity Fund Class I Shares; 240,000,000 as Kemper
Small Cap Value Fund Class A Shares, 240,000,000 as Kemper Small Cap Value Fund
Class B Shares, 60,000,000 as Kemper Small Cap Value Fund Class C Shares and
60,000,000 as Kemper Small Cap Value Fund Class I Shares.
We are counsel to the Fund, and in such capacity are familiar with the
Fund's organization and have counseled the Fund regarding various legal matters.
We have examined such Fund records and other documents and certificates as we
have considered necessary or appropriate for the purposes of this opinion. In
our examination of such materials, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us.
Based upon the foregoing, and assuming that the Fund's Articles of
Incorporation filed October 15, 1987, as amended by the Articles Supplementary
filed January 25, 1988, the Articles
<PAGE>
VEDDER PRICE
Kemper Value Series, Inc.
January 27, 2000
Page 2
Supplementary filed February 26, 1988, the Articles Supplementary filed December
28, 1990, the Articles Supplementary filed March 24, 1992, the Articles of
Amendment filed September 8, 1995, the Articles Supplementary filed September 8,
1995, the Articles of Amendment filed December 5, 1996, the Articles of
Amendment filed July 23, 1997, the Articles Supplementary filed July 23, 1997,
the Articles Supplementary filed January 28, 1998, and the Articles of Amendment
filed April 6, 1998 (collectively, the "Articles") were duly authorized by the
Board of Directors of the Fund; that the Fund's Bylaws, adopted January 13,
1988, as amended January 21, 1998 (the "Bylaws") were duly authorized by the
Board of Directors of the Fund; that the Articles and Bylaws are presently in
full force and effect and have not been amended in any respect except as
provided above; and that the resolutions adopted by the Board of Directors of
the Fund on January 13, 1988, December 7, 1990, March 19, 1992, June 21, 1995,
November 19, 1996, May 21, 1997, July 15, 1997, January 21, 1998 and March 18,
1998 relating to organizational matters, securities matters, and the issuance of
shares are presently in full force and effect and have not been amended in any
respect, we advise you and opine that (a) the Fund is a corporation validly
existing under the laws of the State of Maryland and is authorized to issue
Shares in the Portfolios and Classes; and (b) presently and upon such further
issuance of the Shares in accordance with the Fund's Articles and the receipt by
the Fund of a purchase price not less than the net asset value per Share, and
when the pertinent provisions of the Securities Act of 1933 and such "blue-sky"
and securities laws as may be applied have been complied with, assuming that the
Fund continues to validly exist as provided in (a) above and assuming that the
number of Shares issued by the Fund does not exceed the number of Shares
authorized for each Portfolio and each Class, the Shares are and will be legally
issued and outstanding, fully paid and nonassessable.
This opinion is solely for the benefit of the Fund, the Fund's Board of
Directors and the Fund's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this opinion
in connection with said Post-Effective Amendment.
Very truly yours,
/S/VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our reports on Kemper Contrarian Fund, dated January 18, 2000, and
Kemper-Dreman High Return Equity Fund and Kemper Small Cap Value Fund, dated
January 19, 2000, in the Registration Statement (Form N-1A) of Kemper Value
Series, Inc. and their incorporation by reference in the related Prospectus and
Statement of Additional Information of Kemper Equity Funds/Value Style, filed
with the Securities and Exchange Commission in this Post-Effective Amendment No.
25 to the Registration Statement under the Securities Act of 1933 (File No.
33-18477) and in this Amendment No. 27 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-5385).
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
January 28, 2000
