<PAGE> 1
TABLE OF CONTENTS
- ---------------------------------------------------------
<TABLE>
<S> <C>
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Investment Objectives, Policies and Risk 3
Factors
- ------------------------------------------------
Investment Manager and Underwriter 9
- ------------------------------------------------
Dividends and Taxes 12
- ------------------------------------------------
Net Asset Value 13
- ------------------------------------------------
Purchase of Shares 13
- ------------------------------------------------
Redemption or Repurchase of Shares 17
- ------------------------------------------------
Special Features 19
- ------------------------------------------------
Performance 22
- ------------------------------------------------
Capital Structure 22
- ------------------------------------------------
Account Application
- ------------------------------------------------
</TABLE>
This prospectus contains information about the Fund that you should know before
investing and should be retained for future reference. A Statement of Additional
Information dated May 1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. It is available upon request
without charge from the Fund at the address or telephone number on this cover or
the firm from which this prospectus was received.
Fund shares are not deposits or obligations of, or guaranteed or endorsed by,
any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in Fund
shares involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(LOGO)
KEMPER
RETIREMENT
FUND
SERIES VI
PROSPECTUS MAY 1, 1995
KEMPER RETIREMENT FUND SERIES VI
120 South LaSalle Street, Chicago, Illinois 60603 1-800-621-1048. The objectives
of Kemper Retirement Fund Series VI (the "Fund") are to provide a guaranteed
return of investment on the Maturity Date (May 15, 2006) to investors who
reinvest all dividends and hold their shares to the Maturity Date, and to
provide long-term growth of capital. The Fund pursues its objectives by
investing a portion of its assets in "zero coupon" U.S. Treasury obligations and
the balance of its assets primarily in common stocks. The Fund is intended for
long-term investors and is not appropriate for investors seeking current income.
The assurance that investors who reinvest dividends and hold their shares until
the Maturity Date will receive on the Maturity Date at least their original
investment is provided by the par value of the zero coupon U.S. Treasury
obligations in the Fund's portfolio on that date as well as by a guarantee from
Kemper Financial Services, Inc., the Fund's investment manager. There is no
assurance that the Fund's objective of long-term growth of capital will be
achieved. The Fund's shares are not guaranteed by the U.S. Government. The Fund
is a series of Kemper Target Equity Fund.
<PAGE> 2
KEMPER RETIREMENT FUND SERIES VI
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Retirement Fund Series VI
(the "Fund") is a diversified series of Kemper Target Equity Fund (the "Trust"),
which is an open-end, management investment company that may issue shares in one
or more series. The Fund's investment objectives are to provide a guaranteed
return of investment on the Maturity Date (May 15, 2006) to investors who
reinvest all dividends and hold their shares to the Maturity Date, and to
provide long-term growth of capital. The Fund pursues its objectives by
investing a portion of its assets in "zero coupon" U.S. Treasury Obligations
("Zero Coupon Treasuries") and the balance of its assets primarily in common
stocks. The assurance that investors who reinvest all dividends and hold their
shares until the Maturity Date will receive on the Maturity Date at least their
original investment is provided by the par value of the Zero Coupon Treasuries
as well as by a guarantee from Kemper Financial Services, Inc., the Fund's
investment manager. The Fund's returns will fluctuate and there is no assurance
that the Fund will achieve its objective of long-term capital growth. The Zero
Coupon Treasuries are normally purchased at a substantial discount and represent
the right to receive par value at a fixed date from the U.S. Government. The
amount invested in common stocks provides appreciation potential. See
"Investment Objectives, Policies and Risk Factors."
SPECIAL RISK FACTORS. The Fund is intended for long-term investors and is not
appropriate for investors seeking current income. The Fund is designed so that
shareholders who reinvest all dividends and hold their shares until the Maturity
Date will receive on the Maturity Date an amount at least equal to their
investment, including any sales charge ("Investment Protection"), even if the
value of the investments of the Fund other than the Zero Coupon Treasuries were
to decrease to zero, which the Fund's investment manager considers highly
unlikely. The Fund does not seek to provide a specific return on investors'
capital or to protect principal on an after-tax or present value basis. An
investor who reinvested all dividends and who, upon redemption at the Maturity
Date, received only the principal amount invested, would have received a zero
rate of return on such investment. Investors who do not reinvest all dividends
or who redeem all or part of their shares in the Fund prior to the Maturity Date
will not benefit from the Fund's Investment Protection, and upon redemption may
receive more or less than their original investment; provided, however, in the
event of a partial redemption, the Fund's Investment Protection will continue as
to that part of the original investment that remains invested (with all
dividends thereon reinvested) until the Maturity Date. The government guarantee
of the Zero Coupon Treasuries in the Fund's portfolio does not guarantee the
market value of the Zero Coupon Treasuries or the shares of the Fund, whose net
asset value will fluctuate. Zero Coupon Treasuries normally are subject to
substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. Investors subject to tax should be aware that any portion of the
amount returned to them upon redemption of shares that constitutes accretion of
interest on the Zero Coupon Treasuries will have been taxable as ordinary income
over the period that the shares were held. The Fund may invest a small portion
of its assets in options and foreign securities and may engage in financial
futures and foreign currency transactions. See "Investment Objectives, Policies
and Risk Factors" and "Dividends and Taxes."
INVESTMENT MANAGER AND UNDERWRITER. Kemper Financial Services, Inc. ("KFS") is
the Fund's investment manager. KFS is paid an investment management fee at the
annual rate of .50 of 1% of average daily net assets of the Fund. Kemper
Distributors, Inc. ("KDI"), an affiliate of KFS, is the Fund's principal
underwriter and administrator. Administrative services are provided to
shareholders under an administrative services agreement with KDI. The Fund pays
an administrative services fee at the annual rate of up to .25 of 1% of average
daily net assets of the Fund, which KDI pays to financial services firms. See
"Investment Manager and Underwriter."
PURCHASES AND REDEMPTIONS. Investors may purchase the Fund's shares only during
a limited offering period (the "Offering Period"). Purchases may be made at net
asset value plus a maximum sales charge of 5.0% of the offering price. Reduced
sales charges apply to purchases of $100,000 or more. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100. The minimum
initial investment for an employee benefit plan or
1
<PAGE> 3
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. It is anticipated that the Offering Period will continue until May 15, 1996
but the period may be shortened or extended at the option of the Fund.
Shareholders will still be permitted to reinvest dividends in shares of the Fund
after the end of the Offering Period. Shares may be redeemed without charge or
penalty at net asset value, which may be more or less than original cost. The
redemption within one year of shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a 1% contingent deferred
sales charge. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTORS IN THE FUND. The Fund is designed for long-term investors who seek
principal protection as well as the opportunity for capital growth, such as
investors who want to provide for future health care costs, fund college
education costs or fund IRAs or other tax-qualified retirement plans. Through a
single investment in shares of the Fund, investors receive the benefits of
diversification, professional management and liquidity, and relief from
administrative details such as accounting for distributions and the safekeeping
of securities.
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains. Investors
may have income and capital gain dividends automatically reinvested in the Fund
without a sales charge and must do so in order to receive the benefit of the
Fund's Investment Protection. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Trust is organized as a business trust
under the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest in one or more series, one of such series being the Fund.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholder meetings; but it will hold special meetings
as required or deemed desirable for such purposes as electing trustees, changing
fundamental policies or approving an investment management agreement. See
"Capital Structure."
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge on Purchases (as a percentage of offering price)................... 5.0 %
Maximum Sales Charge on Reinvested Dividends............................................ None
Deferred Sales Charge................................................................... None (2)
Redemption Fees......................................................................... None
Exchange Fee............................................................................ None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees......................................................................... .50 %
12b-1 Fees.............................................................................. None
Other Expenses (estimated).............................................................. .60 %
-----
Total Operating Expenses................................................................ 1.10 %
======
</TABLE>
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. Reduced sales charges apply to purchases of $100,000
or more. See "Purchase of Shares."
(2) The redemption within one year of shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1% contingent
deferred sales charge. See "Purchase of Shares."
EXAMPLE
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming 1 YEAR 3 YEARS
<S> <C> <C>
(1) 5% annual return and (2) redemption at the end of each time period: $61 $83
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. This hypothetical rate
of return is not intended to be representative of past or future performance of
the Fund. "Other Expenses" is an estimate for the current fiscal year. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
2
<PAGE> 4
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
OBJECTIVES. The objectives of the Fund are to provide a guaranteed return of
investment on the Maturity Date (May 15, 2006) to investors who reinvest all
dividends and hold their shares to the Maturity Date and to provide long-term
growth of capital. As a fundamental policy, the Fund pursues its objectives by
investing a portion of its assets in "zero coupon" U.S. Treasury obligations
("Zero Coupon Treasuries") and the balance of its assets primarily in common
stocks ("Equity Securities").
The Fund is intended for long-term investors who seek principal protection as
well as the opportunity for capital growth, such as investors who want to
provide for future health care costs, fund college education costs or fund IRAs
or other tax-qualified retirement plans. The Fund is designed so that
shareholders who reinvest all dividends and hold their investment until the
Maturity Date will receive on the Maturity Date an amount at least equal to
their original investment, including any sales charge ("Investment Protection").
This will occur even if the value of the investments of the Fund other than the
Zero Coupon Treasuries were to decrease to zero, which the investment manager
considers highly unlikely. The assurance that investors who reinvest all
dividends and hold their shares until the Maturity Date will receive on the
Maturity Date at least their original investment is provided by the par value of
the Zero Coupon Treasuries in the Fund's portfolio as well as by a guarantee
from Kemper Financial Services, Inc. ("KFS"), the Fund's investment manager. See
"How the Fund Works" below. Investors who do not reinvest all dividends or who
redeem part or all of their investment in the Fund other than on the Maturity
Date will not receive the benefit of the Fund's Investment Protection, and upon
the redemption may receive more or less than the amount of their original
investment; provided, however, in the event of a partial redemption, the Fund's
Investment Protection will continue as to that part of the original investment
that remains invested (with all dividends thereon reinvested) until the Maturity
Date. The Fund may not be appropriate for investors who expect to redeem their
investment in the Fund prior to the Maturity Date or who will require cash
distributions from the Fund. Since the benefit of Investment Protection is an
inherent characteristic of the Fund's shares, it continues in the event of a
transfer of the shares by gift, under a will or otherwise, provided dividends on
the shares continue to be reinvested and the shares continue to be held until
the Maturity Date.
The opportunity for capital growth for an investor arises to the extent that the
value of the Fund's assets, including Equity Securities, is greater than the par
value of the Zero Coupon Treasuries on the Maturity Date. Thus, the Fund in
effect will have two major portfolio segments: one consisting of Zero Coupon
Treasuries to pursue Investment Protection and the other consisting of Equity
Securities to pursue long-term capital growth. The Fund's returns and net asset
value will fluctuate. There is no assurance that the Fund will achieve its
objective of long-term capital growth.
HOW THE FUND WORKS. As noted above, the Fund will invest in Zero Coupon
Treasuries and Equity Securities in pursuing its objectives. Zero Coupon
Treasuries evidence the right to receive a fixed payment at a specific future
date from the U.S. Government. The Fund will offer its shares during a limited
offering period (the "Offering Period") at net asset value plus the applicable
sales charge. See "Purchase of Shares." The Zero Coupon Treasuries that the Fund
acquires with the proceeds of the sale of its shares during the Offering Period
will be selected so as to mature at a specific par value on or about the
Maturity Date. The Fund's investment manager will continuously adjust the
proportion of the Fund's assets that are invested in Zero Coupon Treasuries so
that the value of the Zero Coupon Treasuries on the Maturity Date (i.e., the
aggregate par value of the Zero Coupon Treasuries in the portfolio) will be
sufficient to enable investors who reinvest all dividends and hold their
investment in the Fund until the Maturity Date to receive on the Maturity Date
the full amount of such investment, including any sales charge. Thus, the
minimum par value of Zero Coupon Treasuries per Fund share necessary to provide
for the Fund's Investment Protection will be continuously determined and
maintained.
In order to provide further assurance that the Fund's Investment Protection will
be maintained, KFS, the Fund's investment manager, has entered into a Guaranty
Agreement. Under the Guaranty Agreement, KFS has agreed to make sufficient
payments on the Maturity Date to enable shareholders who have reinvested all
dividends and held their investment in the Fund until the Maturity Date to
receive on the Maturity Date an aggregate amount of
3
<PAGE> 5
redemption proceeds and payments under the Guaranty Agreement equal to the
amount of their original investment, including any sales charge.
The portion of the Fund's assets that will be allocated to the purchase of Zero
Coupon Treasuries will fluctuate during the Offering Period. This is because the
value of the Zero Coupon Treasuries and Equity Securities, and therefore the
offering price of the Fund's shares, will fluctuate with changes in interest
rates and other market value fluctuations. If the offering price of the Fund's
shares increases during the Offering Period, the minimum par value of Zero
Coupon Treasuries per Fund share necessary to provide for the Fund's Investment
Protection will increase and this amount will be fixed by the highest offering
price during the Offering Period. The Fund may hold Zero Coupon Treasuries in an
amount in excess of the amount necessary to provide for the Fund's Investment
Protection in the discretion of the Fund's investment manager. During the first
year of operations, under normal market conditions, the proportion of the Fund's
portfolio invested in Zero Coupon Treasuries may be expected to range from 50%
to 65%; but a greater or lesser percentage is possible.
As the percentage of Zero Coupon Treasuries in the Fund's portfolio increases,
the percentage of Equity Securities in the portfolio will necessarily decrease.
This will result in less potential for capital growth from equity securities. In
order to help ensure at least a minimum level of exposure to the equity markets
for shareholders, the Fund will cease offering its shares if their continued
offering would cause more than 70% of its assets to be allocated to Zero Coupon
Treasuries. After the Offering Period is over, no additional assets will be
allocated to the purchase of Zero Coupon Treasuries. However, since the values
of the Zero Coupon Treasuries and Equity Securities are often affected in
different ways by changes in interest rates and other market conditions and will
often fluctuate independently, the percentage of the Fund's net asset value
represented by Zero Coupon Treasuries will continue to fluctuate after the end
of the Offering Period. Zero Coupon Treasuries may be liquidated before the
Maturity Date to meet redemptions and pay cash dividends, provided that the
minimum amount necessary to provide for the Fund's Investment Protection is
maintained.
Shareholders who elect to receive dividends in cash are in effect withdrawing a
portion of the accreted income on the Zero Coupon Treasuries that are held to
protect their original principal investment at the Maturity Date. These
shareholders will receive the same net asset value per share for any Fund shares
redeemed at the Maturity Date as shareholders who reinvest dividends, but they
will have fewer shares to redeem than shareholders similarly situated who had
reinvested all dividends. Shareholders who redeem some or all of their shares
before the Maturity Date lose the benefit of Investment Protection with respect
to those shares redeemed. Thus, investors are encouraged to reinvest all
dividends and to evaluate their need to receive some or all of their investment
prior to the Maturity Date before making an investment in the Fund.
ZERO COUPON TREASURIES. The Zero Coupon Treasuries held by the Fund will
consist of U.S. Treasury notes or bonds that have been stripped of their
unmatured interest coupons or will consist of unmatured interest coupons from
U.S. Treasury notes or bonds. The Zero Coupon Treasuries evidence the right to
receive a fixed payment at a future date (i.e., the Maturity Date) from the U.S.
Government, and are backed by the full faith and credit of the U.S. Government.
The guarantee of the U.S. Government does not apply to the market value of the
Zero Coupon Treasuries owned by the Fund or to the shares of the Fund. The
market value of Zero Coupon Treasuries generally will fluctuate inversely with
changes in interest rates. As interest rates rise, the value of the Zero Coupon
Treasuries will tend to decline and as interest rates fall the value of the Zero
Coupon Treasuries will tend to increase. Zero Coupon Treasuries are purchased at
a deep discount because the buyer obtains only the right to a fixed payment at a
fixed date in the future and does not receive any periodic interest payments.
The effect of owning deep discount bonds that do not make current interest
payments (such as the Zero Coupon Treasuries) is that a fixed yield is earned
not only on the original investment but also, in effect, on all earnings during
the life of the discount obligation. This implicit reinvestment of earnings at
the same rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount obligation,
but at the same time eliminates the holder's ability to reinvest at higher rates
in the future. For this reason, the Zero Coupon Treasuries normally are subject
to substantially greater price fluctuations during periods of changing interest
rates than are securities of comparable quality that make regular interest
payments. As the maturity of the Zero Coupon Treasuries
4
<PAGE> 6
becomes shorter (i.e., as the period to the Maturity Date is shorter), the
degree of price fluctuation will become less. Additional information concerning
Zero Coupon Treasuries appears in the Statement of Additional Information of the
Fund under "Investment Policies and Techniques."
EQUITY SECURITIES. With respect to Fund assets not invested in Zero Coupon
Treasuries, the Fund will seek long-term capital growth through professional
management and diversification of investments in securities the Fund's
investment manager believes to have possibilities for capital growth. In seeking
to achieve capital growth, it will be the Fund's policy to invest assets not
otherwise invested in Zero Coupon Treasuries primarily in securities that the
Fund's investment manager believes offer the potential for increasing the Fund's
total asset value. While it is anticipated that most investments will be in
common stocks of companies with above-average growth prospects, investments may
also be made to a limited degree in other common stocks, warrants and in
convertible securities, such as bonds and preferred stocks. Factors that the
Fund's investment manager may consider in making its equity investments are
patterns of growth in sales and earnings, the development of new or improved
products or services, a favorable outlook for growth in the industry, the
probability of increased operating efficiencies, emphasis on research and
development, cyclical conditions, and other signs that a company is expected to
show greater than average capital growth and earnings growth. The Fund's
investment policy with respect to these assets may involve a somewhat greater
risk than is inherent in some other investment securities. Also, any income
received from such securities will be incidental.
In seeking to obtain capital growth, the Fund may trade to some degree in
securities for the short-term. To this extent, the Fund will be engaged in
trading operations based on short-term market considerations as distinct from
long-term investment based upon fundamental valuation of securities.
The Fund may also purchase options on securities and index options, may purchase
and sell financial futures contracts and options on financial futures contracts,
may purchase foreign securities and engage in related foreign currency
transactions and may at times lend its portfolio securities. There may also be
times when a significant portion of the Fund's assets not invested in Zero
Coupon Treasuries may be held temporarily in cash or defensive type securities
such as high-grade debt securities, securities of the U.S. Government and its
agencies and high quality money market instruments, including repurchase
agreements, depending upon the investment manager's analysis of business and
economic conditions and the outlook for security prices.
SPECIAL RISK FACTORS. The value of the Zero Coupon Treasuries and the Equity
Securities in the Fund's portfolio will fluctuate prior to the Maturity Date and
the value of the Zero Coupon Treasuries will equal their par value on the
Maturity Date. As noted previously (see "Zero Coupon Treasuries"), the value of
the Zero Coupon Treasuries may be expected to experience more volatility than
U.S. Government securities that have similar yields and maturities but that make
current distributions of interest. Thus, the net asset value of the Fund's
shares will fluctuate with changes in interest rates and other market conditions
prior to the Maturity Date. As an open-end investment company, the Fund will
redeem its shares at the request of a shareholder at the net asset value per
share next determined after a request is received in proper form. Thus,
shareholders who redeem their shares prior to the Maturity Date may receive more
or less than their acquisition cost, including any sales charge, whether or not
they reinvest their dividends. Such shares, therefore, would not receive the
benefit of the Fund's Investment Protection. Any shares not redeemed prior to
the Maturity Date by a shareholder would continue to receive the benefit of the
Fund's Investment Protection provided that all dividends with respect to such
shares are reinvested. Accordingly, the Fund may not be appropriate for
investors who expect to redeem their investment in the Fund prior to the
Maturity Date.
Each year the Fund will be required to accrue an increasing amount of income on
its Zero Coupon Treasuries utilizing the effective interest method. However, to
maintain its tax status as a pass-through entity under Subchapter M of the
Internal Revenue Code and also to avoid imposition of excise taxes, the Fund
will be required to distribute dividends equal to substantially all of its net
investment income, including the accrued income on its Zero Coupon Treasuries
for which it receives no payments in cash prior to their maturity. Dividends of
the Fund's investment income and short-term capital gains will be taxable to
shareholders as ordinary income for federal income tax
5
<PAGE> 7
purposes, whether received in cash or reinvested in additional shares. See
"Dividends and Taxes." However, shareholders who elect to receive dividends in
cash, instead of reinvesting these amounts in additional shares of the Fund, may
realize an amount upon redemption of their investment on the Maturity Date that
is less or greater than their acquisition cost and, therefore, will not receive
the benefit of the Fund's Investment Protection. Accordingly, the Fund may not
be appropriate for investors who will require cash distributions from the Fund
in order to meet current tax obligations resulting from their investment or for
other needs.
As noted previously, the Fund will maintain a minimum par value of Zero Coupon
Treasuries per share in order to provide for the Fund's Investment Protection.
In order to generate sufficient cash to meet dividend requirements and other
operational needs and to redeem Fund shares on request, the Fund may be required
to limit reinvestment of capital on the disposition of Equity Securities and may
be required to liquidate Equity Securities at a time when it is otherwise
disadvantageous to do so, which may result in the realization of losses on the
disposition of such securities, and may also be required to borrow money to
satisfy dividend and redemption requirements. The liquidation of Equity
Securities and the expenses of borrowing money in such circumstances could
impair the ability of the Fund to meet its objective of long-term capital
growth.
The Fund provides Investment Protection to investors who reinvest all dividends
and do not redeem their shares before the Maturity Date. In addition, as noted
above, dividends from the Fund will be taxable to shareholders whether received
in cash or reinvested in additional shares. Thus, the Fund does not provide a
specific return on investors' capital or protect principal on an after-tax or
present value basis. An investor who reinvested all dividends and who, upon
redemption at the Maturity Date, received only the original amount invested
including any sales charge, would have received a zero rate of return on such
investment. This could only happen if the value of the Fund's investments other
than Zero Coupon Treasuries were to decrease to zero, an event that the Fund's
investment manager considers highly unlikely. The present value of $1,000 on the
Maturity Date discounted for inflation assumed to be at an annual rate of 4% is
approximately $676 on the date of this prospectus.
Investors subject to tax should be aware that any portion of the amount returned
to them upon redemption of shares that constitutes accretion of interest on the
Zero Coupon Treasuries will have been taxable each year as ordinary income over
the period during which shares were held. See "Dividends and Taxes."
The Fund may purchase options on securities and index options, may purchase and
sell financial futures contracts and options on financial futures contracts, may
purchase foreign securities and engage in related foreign currency transactions
and may at times lend its portfolio securities. See "Additional Investment
Information" below for a discussion of these investment techniques and the
related risks.
MATURITY DATE. The Board of Trustees of the Trust may in its sole discretion
elect, without shareholder approval, to continue the operation of the Fund after
the Maturity Date with a new maturity date ("New Maturity Date"). Such a
decision may be made to provide shareholders with the opportunity of continuing
their investment in the Fund for a new term without recognizing any taxable
capital gains as a result of a redemption. In that event, shareholders of the
Fund may either continue as such or redeem their shares in the Fund.
Shareholders who reinvest all dividends and hold their shares to the Maturity
Date will be entitled to the benefit of the Fund's Investment Protection on the
Maturity Date whether they continue as shareholders or redeem their shares. If
this alternative were to be elected, the Fund would at the Maturity Date collect
the proceeds of the Zero Coupon Treasuries that mature on such date and, after
allowing for any redemption requests by shareholders, reinvest such proceeds in
Zero Coupon Treasuries and Equity Securities as necessary to provide for the
Fund's Investment Protection benefit on the New Maturity Date. For such
purposes, the principal investment of shareholders then in the Fund would be
deemed to be the net asset value of their investment in the Fund at the current
Maturity Date. Thus, in effect, the total value of such shareholders' investment
in the Fund on the current Maturity Date will be treated as an investment for
the new term and will benefit from the Fund's Investment Protection for the new
term if they reinvest all dividends and maintain their investment in the Fund
until the New Maturity Date. If the Board of Trustees elects to continue the
Fund, shareholders will be given 60 days' prior notice of such election and the
New Maturity Date. In that event, it is
6
<PAGE> 8
anticipated that the offering of the Fund's shares would commence again after
the Maturity Date with a new prospectus for such period as the Board of Trustees
shall determine.
On the Maturity Date, the Fund may also be terminated at the election of the
Board of Trustees of the Trust in its sole discretion and without approval by
shareholders, upon 60 days' prior notice to shareholders. In such event, the
proceeds of the Zero Coupon Treasuries maturing on such date shall be collected
and the Equity Securities and other assets then owned by the Fund shall be sold
or otherwise reduced to cash, the liabilities of the Fund will be discharged or
otherwise provided for, the Fund's outstanding shares will be mandatorily
redeemed at the net asset value per share determined on the Maturity Date and,
within seven days thereafter, the Fund's net assets will be distributed to
shareholders and the Fund shall be thereafter terminated. Termination of the
Fund may require the disposition of the Equity Securities at a time when it is
otherwise disadvantageous to do so and may involve selling securities at a
substantial loss. The estimated expenses of liquidation and termination of the
Fund, however, are not expected to affect materially the ability of the Fund to
provide for its Investment Protection benefit. In the event of termination of
the Fund as noted above, the redemption of shares effected in connection with
such termination would for current federal income tax purposes constitute a sale
upon which a gain or loss may be realized depending upon whether the value of
the shares being redeemed is more or less than the shareholder's adjusted cost
basis of such shares.
Subject to shareholder approval, other alternatives may be pursued by the Fund
after the Maturity Date. For instance, the Board of Trustees may consider the
possibility of a tax-free reorganization between the Fund and another registered
open-end management investment company or any other series of the Trust. The
Board of Trustees has not considered any possibilities regarding the operation
of the Fund after the Maturity Date.
ADDITIONAL INVESTMENT INFORMATION. The annual turnover rate of the Fund's
portfolio may vary from year to year, and may also be affected by cash
requirements for redemptions and repurchases of Fund shares, and by the
necessity of maintaining the Fund as a regulated investment company under the
Internal Revenue Code in order to receive certain favorable tax treatment. It is
anticipated that, under normal circumstances, the Fund's portfolio turnover rate
will be less than 100%.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value of
its total assets, in order to meet redemption requests without immediately
selling any portfolio securities or other assets. If, for any reason, the
current value of the Fund's total assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Fund will, within
three days (not including Sundays and holidays), reduce its indebtedness to the
extent necessary. The Fund will not borrow for leverage purposes. The Fund may
pledge up to 15% of its total assets to secure any such borrowings. The Fund
will not purchase illiquid securities, including repurchase agreements maturing
in more than seven days, if, as a result thereof, more than 10% of the Fund's
net assets, valued at the time of the transaction, would be invested in such
securities.
The Trust has adopted for the Fund certain fundamental investment restrictions
which are presented in the Statement of Additional Information and which,
together with its investment objectives and any policies of the Fund
specifically designated in this prospectus as fundamental, cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy; or (b) more than 50%
of the outstanding shares of the Fund. Policies of the Fund that are neither
designated as fundamental nor incorporated into any of the fundamental
investment restrictions referred to above may be changed by the Board of
Trustees of the Fund without shareholder approval. Notwithstanding the
foregoing, the Board of Trustees may, in its discretion and without shareholder
approval, determine that the Fund should be terminated on the Maturity Date or
continued thereafter with a New Maturity Date as more fully described under
"Maturity Date" above.
Options and Financial Futures Transactions. The Fund may invest up to five
percent of its net assets in put and call options on securities. A put option
gives the holder (buyer) the right to sell a security at a specified price (the
7
<PAGE> 9
exercise price) at any time until a certain date (the expiration date). A call
option gives the holder (buyer) the right to purchase a security or other asset
at a specified price (the exercise price) at any time until a certain date (the
expiration date). The Fund will only invest in options that are traded on
securities exchanges and for which it pays a premium (cost of option). As part
of its options transactions, the Fund may also purchase options on securities
indices in an attempt to hedge against market conditions affecting the values of
securities that the Fund owns or intends to purchase, and not for speculation.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option. In
connection with its foreign securities investments, the Fund may also purchase
foreign currency options. The Fund may enter into closing transactions, exercise
its options or permit them to expire.
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. The Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with its foreign securities investments, the Fund may also engage in
foreign currency financial futures transactions.
The Fund may engage in financial futures transactions as an attempt to hedge
against market risks. For example, when the near-term market view is bearish but
the portfolio composition is judged satisfactory for the longer term, exposure
to temporary declines in the market may be reduced by entering into futures
contracts to sell securities or the cash value of a securities index.
Conversely, where the near-term view is bullish, but the Fund is believed to be
well positioned for the longer term with a high cash position, the Fund can
hedge against market increases by entering into futures contracts to buy
securities or the cash value of a securities index. In either case, the use of
futures contracts would tend to reduce portfolio turnover and facilitate the
Fund's pursuit of its investment objectives.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and futures markets could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce the Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
8
<PAGE> 10
The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in financial futures
contracts or related options for speculation, but only as an attempt to hedge
against changes in market conditions affecting the values of securities that the
Fund owns or intends to purchase.
Risk Considerations. Options, financial futures transactions and forward
foreign currency contracts are derivatives. The Statement of Additional
Information contains further information about the characteristics, risks and
possible benefits of options and futures transactions. See "Investment Policies
and Techniques" in the Statement of Additional Information. The principal risks
are: (a) possible imperfect correlation between movements in the prices of
options or futures contracts and movements in the prices of the securities or
currencies hedged or used for cover; (b) lack of assurance that a liquid
secondary market will exist for any particular option or futures contract at any
particular time; (c) the need for additional skills and techniques beyond those
required for normal portfolio management; (d) losses on futures contracts
resulting from market movements not anticipated by the investment manager; and
(e) the possible need to defer closing out certain options or futures contracts
in order to continue to qualify for beneficial tax treatment afforded "regulated
investment companies" under the Internal Revenue Code.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to
broker-dealers) without limit where such loans are callable at any time and are
continuously secured by segregated collateral (cash or U.S. Government
securities) equal to no less than the market value, determined daily, of the
securities loaned. The Fund will receive amounts equal to dividends or interest
on the securities loaned. It will also earn income for having made the loan. Any
cash collateral pursuant to these loans will be invested in short-term money
market instruments. As with other extensions of credit, there are risks of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Fund's investment manager to be of good standing, and when the
Fund's investment manager believes the potential earnings to justify the
attendant risk. Management will limit such lending to not more than one-third of
the value of the Fund's total assets.
Foreign Securities. Although the Fund will invest primarily in securities that
are publicly traded in the United States, it has the discretion to invest a
portion of its assets in foreign securities that are traded principally in
securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to
less than 10% of its total assets. The Fund may also invest in U.S. Dollar
denominated American Depository Receipts ("ADRs"), which are bought and sold in
the United States and are not subject to the preceding limitation. Foreign
securities present certain risks in addition to those presented by domestic
securities, including risks associated with currency fluctuations, possible
imposition of foreign governmental regulations or taxes adversely affecting
portfolio securities and generally different degrees of liquidity, market
volatility and availability of information. However, the Fund intends to invest
in foreign securities only when the potential benefits to it are deemed by the
Fund's investment manager to outweigh those risks. The Fund may make investments
in developing countries that are in the initial stages of their
industrialization cycle. In the past, markets of developing countries have been
more volatile than the markets of developed countries; however such markets
often have provided higher rates of return to investors. Investments in foreign
securities may include securities issued by enterprises that have undergone or
are currently undergoing privatization. In connection with its foreign
securities investments, the Fund may, to a limited extent, engage in foreign
currency exchange transactions, purchase foreign currency options and purchase
and sell foreign currency futures contracts. More complete information
concerning foreign securities and related techniques is contained under
"Investment Policies and Techniques--Foreign Securities and Foreign Currency
Transactions" in the Statement of Additional Information.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. KFS is
one of the largest investment managers in the country and has been engaged in
the management of
9
<PAGE> 11
investment funds for more than forty-five years. KFS and its affiliates provide
investment advice and manage investment portfolios for the Kemper Funds, the
Kemper insurance companies, Kemper Corporation and other corporate, pension,
profit-sharing and individual accounts representing approximately $60 billion
under management. KFS acts as investment manager for 24 open-end and seven
closed-end investment companies, with 60 separate investment portfolios,
representing more than 3 million shareholder accounts. KFS is a wholly-owned
subsidiary of Kemper Financial Companies, Inc., which is a financial services
holding company that is more than 96% owned by Kemper Corporation, a diversified
insurance and financial services holding company.
Kemper Corporation has entered into an agreement in principle with an investor
group led by Zurich Insurance Company ("Zurich") pursuant to which Kemper
Corporation would be acquired by the investor group in a merger transaction. As
part of the transaction, Zurich or an affiliate would purchase KFS.
A definitive agreement is expected in early May, 1995, subject to the completion
of the investor group's due diligence. Consummation of the transaction is
subject to a number of contingencies, including approval by the board and
stockholders of Kemper Corporation and the Zurich board and regulatory
approvals. Because the transaction would constitute an assignment of the Fund's
investment management agreement with KFS under the Investment Company Act of
1940, and therefore a termination of such agreement, it is anticipated that KFS
would seek approval of a new agreement from the Fund's board and shareholders
prior to consummation of the transaction. The transaction is expected to close
early in the fourth quarter of 1995.
After consummation of the transaction, it is anticipated that the KFS management
team and the Kemper Fund portfolio managers would remain in place and that the
Kemper Funds would be operated in the same manner as they are currently.
Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Trust. Professional investment supervision is
provided by KFS. The investment management agreement provides that KFS shall act
as the Fund's investment adviser, manage its investments and provide it with
various services and facilities. KFS will utilize the services of Kemper
Investment Management Company Limited, 1 Fleet Place, London EC4M 7RQ, a
wholly-owned subsidiary of KFS, with respect to foreign securities investments
of the Fund, including analysis, research, execution and trading services.
Tracy McCormick Chester is the portfolio manager of the Trust. She has served in
this capacity since 1994. Ms. McCormick Chester joined KFS in September 1994.
Prior to coming to KFS, she was a senior vice president and portfolio manager of
an investment management company and prior thereto, she managed private
accounts. She received a B.A. and a M.B.A. in Finance from Michigan State
University, East Lansing, Michigan.
KFS has an Equity Investment Committee that determines overall investment
strategy for equity portfolios managed by KFS. The Equity Investment Committee
is currently comprised of the following members: Daniel J. Bukowski, Tracy
McCormick Chester, C. Beth Cotner, James H. Coxon, Richard A. Goers, Karen A.
Hussey, Frank D. Korth, Gary A. Langbaum, James R. Neel, Thomas M. Regner and
Stephen B. Timbers. The portfolio managers work together as a team with the
Equity Investment Committee and various equity analysts and equity traders to
manage the Fund's investments. Equity analysts--through research, analysis and
evaluation--work to develop investment ideas appropriate for the Fund. These
ideas are studied and debated by the Equity Investment Committee and, if
approved, are added to a list of eligible investments. The portfolio managers
use the list of eligible investments to help them structure the Fund's portfolio
in a manner consistent with the Fund's objective. The KFS International Equity
Investments area, directed by Mr. Dennis H. Ferro, provides research and
analysis regarding foreign investments to the portfolio managers. After
investment decisions are made, equity traders execute the portfolio manager's
instructions through various broker-dealer firms.
The Fund pays KFS an investment management fee, payable monthly, at the annual
rate of .50 of 1% of average daily net assets of the Fund. The investment
management agreement provides that the Fund shall pay the charges and expenses
of its operations, including the fees and expenses of the trustees (except those
affiliated with KFS),
10
<PAGE> 12
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting agreement, Kemper
Distributors, Inc. ("KDI"), an affiliate of KFS, is the principal underwriter of
the Fund's shares and acts as agent of the Fund in the sale of its shares. KDI
receives no compensation from the Fund as principal underwriter and pays all
expenses of distribution of the Fund's shares under the underwriting agreement
not otherwise paid by dealers or other financial services firms. The Fund bears
the expense of registration of its shares with the Securities and Exchange
Commission, while KDI, as underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states. 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 Fund shares.
ADMINISTRATOR. KDI also provides information and administrative services for
Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). KDI enters into related arrangements with various
financial services firms, such as broker-dealer firms or banks ("firms"), that
provide services and facilities for their customers or clients who are
shareholders of the Fund. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining shareholder
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features, and such other
services as may be agreed upon from time to time and permitted by applicable
statute, rule or regulation. KDI bears all its expenses of providing services
pursuant to the administrative agreement, including the payment of any service
fees. For services under the administrative agreement, the Fund pays KDI a fee,
payable monthly, at the annual rate of up to .25 of 1% of average daily net
assets of the Fund. KDI then pays each firm a service fee at an annual rate of
up to .25 of 1% of net assets of those accounts in the Fund that it maintains
and services. Firms to which service fees may be paid include broker-dealers
affiliated with KDI. A firm becomes eligible for the service fee based on assets
in the accounts in the month following the month of purchase and the fee
continues until terminated by KDI or the Fund. The fees are calculated monthly
and paid quarterly.
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 Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect would depend upon the proportion of Fund assets that is
in accounts for which there is a firm of record.
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
the United Missouri Bank, n.a., Tenth and Grand Streets, Kansas City, Missouri
64106 and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodians, have custody of all securities and cash
of the Fund maintained in the United States. The Chase Manhattan Bank, N.A.,
Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of
all securities and cash of the Fund held outside the United States. They attend
to the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund. IFTC also is the Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company, an affiliate of KFS, serves as "Shareholder
Service Agent" of the Fund and, as such, performs all of IFTC's duties as
transfer agent and dividend paying agent. For a description of transfer agent
and shareholder service agent fees payable to IFTC and the Shareholder Service
Agent, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
PORTFOLIO TRANSACTIONS. KFS places all orders for purchases and sales of the
Fund's securities. Subject to seeking best execution of orders, KFS may consider
sales of shares of the Fund and other funds managed by KFS as a factor in
selecting broker-dealers. See "Portfolio Transactions" in the Statement of
Additional Information.
11
<PAGE> 13
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains.
Income dividends and capital gain dividends, if any, will be credited to
shareholder accounts in full and fractional Fund shares at net asset value on
the reinvestment date without sales charge except that, upon written request to
the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares at net asset value; or
(2) To receive income and capital gain dividends in cash.
Any dividends that are reinvested will be reinvested in shares of the Fund. Upon
written request by a shareholder to the Shareholder Service Agent, a share
certificate will be issued for any or all full shares credited to the
shareholder's account. As noted previously (see "Investment Objectives, Policies
and Risk Factors--How the Fund Works and Special Risk Factors"), only
shareholders who reinvest all their dividends in the Fund and hold their shares
until the Maturity Date will receive the benefit of the Fund's Investment
Protection.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code") and, if so qualified, will
not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders are
taxed at a maximum rate of 28%. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. It is anticipated that a portion of the ordinary income dividends
paid by the Fund will qualify for the dividends received deduction available to
corporate shareholders.
The Zero Coupon Treasuries will be treated as bonds that were issued to the Fund
at an original issue discount. Original issue discount is treated as interest
for federal income tax purposes and the amount of original issue discount
generally will be the difference between the bond's purchase price and its
stated redemption price at maturity. The Fund will be required to include in
gross income for each taxable year the daily portions of original issue discount
attributable to the Zero Coupon Treasuries held by the Fund as such original
issue discount accrues. Dividends derived from such original issue discount that
accrues for such year will be taxable to shareholders as ordinary income. In
general, original issue discount accrues daily under a constant interest rate
method which takes into account the semi-annual compounding of accrued interest.
In the case of the Zero Coupon Treasuries, this method will generally result in
an increasing amount of income to the Fund each year.
A dividend received by a shareholder shortly after the purchase of shares
reduces the net asset value of the shares by the amount of the dividend and,
although in effect a return of capital, will be taxable to the shareholder. If
the net asset value of shares were reduced below the shareholder's cost by
dividends representing gains realized on sales of securities, such dividends
would be a return of investment though taxable as stated above.
Fund dividends that are derived from interest on the Zero Coupon Treasuries and
other direct obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states. In
other states, arguments can be made that such distributions should be exempt
from state and local taxes based on federal law, 31 U.S.C. Section 3124, and the
U.S. Supreme Court's interpretation of that provision in American Bank and Trust
Co. v. Dallas County, 463 U.S. 855 (1983). The Fund currently intends to advise
shareholders of the proportion of its dividends that consists of such interest.
Shareholders should consult their tax advisers regarding the possible exclusion
of such portion of their dividends for state and local income tax purposes.
12
<PAGE> 14
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for dividend reinvestment, periodic investment and redemption programs
and reinvestment programs for unit investment trusts underwritten by KDI or an
affiliate. 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.
NET ASSET VALUE
The net asset value per share is determined by calculating the total value of
the Fund's assets, which will normally be composed chiefly of investment
securities, deducting total liabilities and dividing the result by the number of
shares outstanding. Fixed income securities, including Zero Coupon Treasuries,
are valued by using market quotations, or independent pricing services that use
prices provided by market makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Portfolio securities that are traded on a domestic securities exchange or
securities listed on the NASDAQ National Market are valued at the last sale
price on the exchange or market where primarily traded or listed or, if there is
no recent last sale price available, at the last current bid quotation.
Portfolio securities that are primarily traded on foreign securities exchanges
are generally valued at the preceding closing values of such securities on their
respective exchanges where primarily traded. Securities not so traded or listed
are valued at the last current bid quotation if market quotations are available.
Equity options are valued at the last sale price unless the bid price is higher
or the asked price is lower, in which event such bid or asked price is used.
Financial futures and options thereon are valued at the settlement price
established each day by the board of trade or exchange on which they are traded.
Other securities and assets are valued at fair value as determined in good faith
by the Board of Trustees. For purposes of determining the Fund's net asset
value, all assets and liabilities initially expressed in foreign currency values
will be converted into U.S. Dollar values at the mean between the bid and
offered quotations of such currencies against U.S. Dollars as last quoted by a
recognized dealer. If an event were to occur after the value of a security was
so established but before the net asset value per share was determined, which
was likely to materially change the net asset value, then that security would be
valued using fair value considerations by the Board of Trustees or its
delegates. On each day the New York Stock Exchange (the "Exchange") is open for
trading, the net asset value is determined as of the earlier of 3:00 p.m.
Chicago time or the close of the Exchange.
PURCHASE OF SHARES
Shares of the Fund may be purchased from investment dealers during the Offering
Period described below at the public offering price, which is the net asset
value next determined plus a sales charge that is a percentage of the public
offering price and varies as shown below. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account or employee
13
<PAGE> 15
benefit plan account is $250 and the minimum subsequent investment is $50. These
minimum amounts may be changed at any time in management's discretion.
<TABLE>
<CAPTION>
Sales Charge
------------------------------------------------------------
Allowed to
Dealers as a
As a Percentage As a Percentage Percentage of
Amount of Purchase of Offering Price of Net Asset Value* Offering Price
- ------------------------------------------------- ----------------- ------------------- --------------
<S> <C> <C> <C>
Less than $100,000............................... 5.00% 5.26% 4.50%
$100,000 but less than $250,000.................. 4.00 4.17 3.60
$250,000 but less than $500,000.................. 3.00 3.09 2.70
$500,000 but less than $1 million................ 2.00 2.04 1.80
$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.
Shares will only be offered to the public during the Offering Period, which is
expected to end on May 1, 1996. The Fund may at its option extend or shorten the
Offering Period. The offering of shares of the Fund shall be subject to
suspension or termination as provided under "Investment Objectives, Policies and
Risk Factors--How the Fund Works." In addition, the offering of Fund shares may
be suspended from time to time during the Offering Period in the discretion of
KDI. During any period in which the public offering of shares is suspended or
terminated, shareholders will still be permitted to reinvest dividends in shares
of the Fund.
Share certificates will not be issued unless requested in writing. 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).
The Fund receives the entire net asset value of all shares sold. KDI, the Fund's
principal underwriter, retains the sales charge from which it allows discounts
from the applicable public offering price to investment dealers, which discounts
are uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be underwriters as that term
is defined in the Securities Act of 1933.
Banks and other financial services firms may provide administrative services
related to order placement and payment to facilitate transactions in shares of
the Fund for their clients, and KDI may pay them a transaction fee up to the
level of the discount or other concession allowable to dealers as described
above. Banks currently are prohibited under the Glass-Steagall Act from
providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. Management does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts or promotional incentives, in the
form of cash or other compensation, to firms that sell shares of the Fund.
Non-cash compensation includes luxury merchandise and trips to luxury resorts.
In some instances, such discounts or other incentives will be offered only to
certain firms that sell or are expected to sell during specified
time periods certain minimum amounts of shares of the Fund, or other funds
underwritten by KDI.
14
<PAGE> 16
Shares of the Fund may be purchased at net asset value to the extent that the
amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which Kemper Financial Services, Inc. does not serve as
investment manager ("non-Kemper fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized.
Shares of the Fund may be purchased at net asset value by: (a) any purchaser
provided that the amount invested in the Fund or other Kemper Mutual Funds
described under "Special Features--Combined Purchases" totals at least
$1,000,000 including purchases 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 provided in either case that such plan has
not less than 200 eligible employees (the "Large Order NAV Purchase Privilege").
A contingent deferred sales charge of 1% may be imposed upon redemption of
shares of the Fund that are purchased under the Large Order NAV Purchase
Privilege 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 KDI; (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); and (e) redemptions under the
Fund's Systematic Withdrawal Plan at a maximum of 10% per year of the net asset
value of the account.
Shares of the Fund purchased under the Large Order NAV Purchase Privilege may be
exchanged for shares of another Kemper Mutual Fund or a Money Market Fund under
the exchange privilege described under "Special Features--Exchange Privilege"
without paying any contingent deferred sales charge at the time of exchange. If
the 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.
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of shares of the Fund to employer
sponsored employee benefit plans using the subaccount recordkeeping system made
available through KDI 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 in any calendar year, .50% on the next
$5 million and .25% on amounts over $10 million in such calendar year. KDI may
in its discretion compensate investment dealers or other financial services
firms in connection with the sale of shares of the Fund to other purchasers 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 $3 million, .50% on the next $2 million and .25% on amounts over $5 million.
For purposes of determining the appropriate commission percentage to be applied
to a particular sale under the foregoing schedule, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Kemper Mutual
Funds listed under "Special Features--Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing shares of the
Fund at net asset value under the Large Order NAV Purchase Privilege is not
available if another net asset value purchase privilege is also applicable.
15
<PAGE> 17
Shares may be sold to officers, trustees, directors, employees (including
retirees) and sales representatives of the Fund, its investment manager, its
principal underwriter or certain affiliated companies, for themselves or members
of their families, or to any trust, pension, profit-sharing or other benefit
plan for only such persons at net asset value and in any amount. Shares may be
sold at net asset value in any amount to registered representatives and
employees of broker-dealers having selling group agreements with KDI and
officers, directors and employees of service agents of the Fund, for themselves
or their spouses or dependent children, or to any trust or pension,
profit-sharing or other benefit plan for only such persons. 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 Fund 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 Fund shares at net asset value hereunder. Shares may
be sold at net asset value in any amount to unit investment trusts underwritten
by KDI or an affiliate of KDI. In addition, unitholders of unit investment
trusts underwritten by KDI or an affiliate of KDI may purchase Fund shares at
net asset value through reinvestment programs described in the prospectuses of
such trusts which have such programs. Shares of the Fund may be sold at net
asset value through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms that adhere to certain
standards established by KDI, including a requirement that such shares be sold
for the benefit of their clients participating in a "wrap account" or similar
program under which such clients pay a fee to the investment adviser or other
firm. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the Fund. The
Fund may also issue 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.
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.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund 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
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
16
<PAGE> 18
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value next determined after receipt by KDI of the order
accompanied by payment. However, orders 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 its business day will be confirmed at a price based on
the net asset value effective on that day. The Fund reserves the right to
determine the net asset value more frequently than once a day if deemed
desirable. Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by making 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. As noted previously (see "Investment Objectives, Policies
and Risk Factors--How the Fund Works and Special Risk Factors"), only
shareholders who hold their shares in the Fund until the Maturity Date and
reinvest their dividends in the Fund will necessarily receive the benefit of the
Fund's Investment Protection.
The redemption price will be the net asset value next determined following
receipt by the Shareholder Service Agent of a properly executed request with any
required documents as described above. Payment for shares redeemed will be made
in cash as promptly as practicable but in no event later than seven days after
receipt of a properly executed request accompanied by any outstanding share
certificates in proper form for transfer. When the Fund is requested to redeem
shares for which it may not have yet received good payment, it may delay
transmittal of redemption proceeds until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 15 days
from receipt by the Fund of the purchase amount. The redemption within one year
of shares purchased at net asset value under the Large Order NAV Purchase
Privilege may be subject to a 1% contingent deferred sales charge (see "Purchase
of Shares").
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. Neither the Fund nor its agents will be
liable for any loss, expense or cost arising out of any telephone request
pursuant to these privileges, including any fraudulent or unauthorized request,
and THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, so long as the Fund or its agent
reasonably believes, based upon reasonable
17
<PAGE> 19
verification procedures, that the telephonic instructions are genuine. 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 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 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 may not be
redeemed under this privilege of redeeming shares by telephone request until
such shares have been owned for at least 15 days. This privilege of redeeming
shares by telephone request or by written request without a signature guarantee
may not be used to redeem shares held in certificated form and may not be used
if the shareholder's account has had an address change within 30 days of the
redemption request. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
redemption privilege, although investors can still redeem by mail. The Fund
reserves the right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares 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 effective on that day and
normally the proceeds will be sent to the designated account the following
business day. Delivery of the proceeds of a wire redemption request of $250,000
or more may be delayed by the Fund for up to seven days if KFS deems it
appropriate under then current market conditions. Once authorization is on file,
the Shareholder Service Agent will honor requests by telephone at 1-800-621-1048
or in writing, subject to the limitations on liability described under "General"
above. The Fund is not responsible for the efficiency of the federal wire system
or the account holder's financial services firm or bank. The Fund currently does
not charge the account holder for wire transfers. The account holder is
responsible for any charges imposed by the account holder's firm or bank. There
is a $1,000 wire redemption minimum. 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 may not be redeemed by wire transfer until such shares have
been owned for at least 15 days. Account holders may not use this procedure to
redeem shares held in certificated form. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the expedited redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
18
<PAGE> 20
REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares of the Fund or
any other Kemper Mutual Fund listed under "Special Features--Combined Purchases"
may reinvest up to the full amount redeemed at net asset value at the time of
the reinvestment in shares of the Fund or in shares of the other listed Kemper
Mutual Funds. A shareholder of the Fund or any other Kemper Mutual Fund who
redeems shares purchased under the Large Order NAV Purchase Privilege (see
"Purchase of 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 shares of the Fund or shares 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 of
another Kemper Mutual Fund who has redeemed shares of that fund may reinvest up
to the full amount redeemed, less any applicable contingent deferred sales
charge that may have been imposed upon the redemption of such shares, at net
asset value in the Fund or in Class A shares of the other Kemper Mutual Funds
listed under "Special Features--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 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 Fund
shares, the reinvestment may be subject to the "wash sale" rules if made within
30 days of the redemption, resulting in the postponement of the recognition of
such loss for federal income tax purposes. The reinvestment privilege may be
terminated or modified at any time and is subject to the limited Offering Period
of the Fund.
SPECIAL FEATURES
COMBINED PURCHASES. The Fund's shares may be purchased at the rate applicable to
the discount bracket attained by combining concurrent investments in Class A
shares (or the equivalent) of any of the following funds: Kemper Technology
Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization
Equity Fund, Kemper Income and Capital Preservation Fund, Kemper Municipal Bond
Fund, Kemper Diversified Income Fund, Kemper High Yield Fund, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period) Kemper Intermediate Municipal Bond Fund, Kemper
Cash Reserves Fund (available only upon exchange or conversion from Class A
shares of another Kemper Mutual Fund), Kemper U.S. Mortgage Fund and Kemper
Short-Intermediate Government Fund ("Kemper Mutual Funds"). Except as noted
below, there is no combined purchase credit for direct purchases of shares of
Kemper Money Market Fund, Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Cash Account Trust, Tax-Exempt New York Money Market 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 KFS 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.
LETTER OF INTENT. The same reduced sales charges, 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. As noted under "Purchase of
Shares," the Offering Period for the purchase of shares of the Fund is limited.
However, shares of other Kemper Mutual Funds noted above would be available
beyond that period. The Letter, which imposes no obligation to purchase or sell
additional 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
19
<PAGE> 21
shares will be 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 KFS 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.
CUMULATIVE DISCOUNT. The Fund's shares also may be purchased at the rate
applicable to the discount bracket attained by adding to the cost of Fund shares
being purchased the value of all 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.
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. Subject to the following limitations, shares of the Kemper
Mutual Funds and Money Market Funds listed under "Special Features--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds that were acquired by purchase (not
including shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange. Shares purchased by check or through
EXPRESS-Transfer may not be exchanged until they have been owned for at least 15
days. In addition, shares of a Kemper Mutual 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. A series of Kemper Target
Equity Fund will be 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, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.
Exchanges may only be made for funds that are available for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Tax-Exempt New York Money
Market Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Mutual Funds, Attention: Exchange Department, P.O. Box 419557,
Kansas City, Missouri 64141-6557, or by telephone if the shareholder has given
authorization. Once the authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-621-1048 or in writing, 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. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to
20
<PAGE> 22
purchase shares in the Fund. Shareholders can also redeem shares (minimum $500
and maximum $2,500) from their Fund account and transfer the proceeds to their
bank, savings and loan, or credit union checking account. 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 Kemper Service Company, 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").
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of the Fund's shares at
the offering price (net asset value plus the sales charge) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The $5,000 minimum account size is not applicable to Individual Retirement
Accounts. The minimum periodic payment is $100. 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 shares while participating in a systematic withdrawal plan
ordinarily will 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 already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. (See "Purchase of Shares" regarding the limited Offering Period for
the Fund's shares.) The right is reserved to amend the systematic withdrawal
plan on 30 days' notice. The plan may be terminated at any time by the investor
or the Fund. As noted previously (see "Investment Objectives, Policies and Risk
Factors--How the Fund Works and Special Risk Factors"), only shareholders who
hold their shares in the Fund until the Maturity Date and reinvest their
dividends in the Fund will necessarily receive the benefit of the Fund's
Investment Protection.
TAX-SHELTERED RETIREMENT PLANS. KFS provides retirement plan services and
documents and KDI can establish investor accounts in any of the following types
of retirement plans:
- - Individual Retirement Accounts ("IRAs") trusteed by IFTC. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also trusteed by IFTC. 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 and materials for establishing
them are available from KDI upon request. The brochures for plans trusteed by
IFTC describe the current fees payable to IFTC for its services as trustee.
Investors should consult with their own tax advisers before establishing a
retirement plan. In view of the limited Offering Period of the Fund (see
"Purchase of Shares"), the Fund may not be appropriate for periodic contribution
plans.
21
<PAGE> 23
PERFORMANCE
The Fund may advertise several types of performance information, including
"average annual total return" and "total return." Each of these figures is based
upon historical results and is not representative of the future performance of
the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund). Average annual total return figures
represent the average annual percentage change over the period in question.
Total return figures represent the aggregate percentage or dollar value change
over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged indexes including the Standard & Poor's 500 Stock Index, the
Russell 1000(R) Growth Index and the Wilshire 750 Mid-Cap Growth Index. The
Fund's performance may also be compared to the performance of other mutual funds
or mutual fund indexes 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.
The Fund may quote information 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(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue 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.
The Fund may depict the historical performance of the securities in which the
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. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's shares are sold at net asset value plus a maximum sales charge of
5.0% of the offering price. While the maximum sales charge is normally reflected
in the Fund's performance figures, certain total return calculations may not
include such charge and those results would be reduced if it were included. The
Fund's returns and net asset value will fluctuate. Shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Additional information concerning the Fund's
performance and concerning the historical performance of various types of
investments that may be used to provide for retirement needs appears in the
Statement of Additional Information. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which is
available without charge from the Fund.
CAPITAL STRUCTURE
The Trust is an open-end, management investment company, organized as a business
trust under the laws of Massachusetts on August 3, 1988. Effective May 1, 1994,
the Trust changed its name from Kemper Retirement Fund to Kemper Target Equity
Fund. The Trust may issue an unlimited number of shares of beneficial interest
in one or
22
<PAGE> 24
more series, all having no par value. The Trust has established seven series of
shares: Kemper Retirement Fund Series I, Series II, Series III, Series IV and
Series V, which are no longer offered, Kemper Retirement Fund Series VI, which
is the Fund, and Kemper Worldwide 2004 Fund. The Board of Trustees may authorize
the issuance of additional series if deemed desirable, each with its own
investment objective, policies and restrictions. Since the Trust may offer
multiple series, it is known as a "series company." Shares of a series have
equal noncumulative voting rights and equal rights with respect to dividends,
assets and liquidation of such series. Shares are fully paid and nonassessable
when issued, are transferable without restriction and have no preemptive or
conversion rights. The Trust is not required to hold annual shareholders'
meetings and does not intend to do so. However, it will hold special meetings as
required or deemed desirable for such purposes as electing trustees, changing
fundamental policies or approving an investment management agreement. Subject to
the Agreement and Declaration of Trust of the Trust, shareholders may remove
trustees. Shareholders will vote by series and not in the aggregate except when
voting in the aggregate is required under the Investment Company Act of 1940,
such as for the election of trustees. Any series of the Trust, including the
Fund, may be divided by the Board of Trustees into classes of shares, subject to
receipt of an appropriate order from the Securities and Exchange Commission. The
Trust's shares currently are not divided into classes. Shares of a series would
be subject to any preferences, rights or privileges of any classes of shares of
the series. Generally each class of shares issued by a particular series of the
Trust would differ as to the allocation of certain expenses of the series such
as distribution and administrative expenses permitting, among other things,
different levels of service or methods of distribution among various classes.
23
<PAGE> 25
INSTITUTIONAL ACCOUNT APPLICATION GUIDE
KEMPER RETIREMENT FUND SERIES VI
INSTRUCTIONS
Please make sure you are using the correct application. Use the Institutional
Account Application for Corporate, Trust or other Fiduciary accounts. Use the
Individual Account Application for Individual, Joint Owners and Transfer to
Minor accounts.
THIS APPLICATION CANNOT BE USED TO ESTABLISH A RETIREMENT ACCOUNT WITH INVESTORS
FIDUCIARY TRUST COMPANY AS TRUSTEE. This application also cannot be used for any
modification of an existing account. To obtain an application for Retirement
Accounts, or forms to modify your account, call 1-800-621-1048.
- - Please print information exactly as you wish it to appear on the account.
- - Please check the box that is applicable to the type of account you are
opening.
- - PLEASE BE SURE TO COMPLETE BOTH SECTIONS I AND II.
- - PLEASE BE SURE TO SIGN THIS APPLICATION.
- - Signature(s) of authorized person(s) are required.
READ THIS IMPORTANT INFORMATION
FUND FEATURES
Exchanges. If you elect this option:
- You are authorizing exchanges between Kemper Mutual Funds by ANY
PERSON by telephone.
- Shares held in certificated form may not be exchanged until they
have been received by the Fund's Shareholder Service Agent and
deposited to the account.
- If exchanging to a new account, the minimum requirement is $1,000.
- Subsequent exchanges may be made for $100 or more.
Wire Redemptions. If you elect this option:
- You are authorizing the Fund or its agents to honor telephone or
other instructions from ANY PERSON for the redemption of Fund
shares. Proceeds will be wire transferred to the bank account
referenced on the application.
- Shares held in certificated form may not be redeemed under this
privilege.
- The amount redeemed must be at least $1,000.
Telephone Redemptions. If you elect this option:
- You are authorizing the Fund or its agents to honor telephone or
other instructions from ANY PERSON for the redemption of Fund
shares. Redemptions may not exceed $50,000 and proceeds are to be
payable to the shareholder of record and mailed to the address of
record.
- Shares held in certificated form may not be redeemed under this
privilege.
CERTIFICATION
The account holders certify that they have the power and authority to establish
this account and select the privileges requested. Account holders can request
the following telephone privileges on this application: expedited wire transfer
redemptions, telephone exchange transactions and pre-authorized telephone
redemption transactions. Please note that the telephone exchange privilege is
automatic unless the account holder refuses it. Neither the Fund nor its agents
will be liable for any loss, expense or cost arising out of any telephone
request pursuant to these privileges, including any fraudulent or unauthorized
request, and THE ACCOUNT HOLDER WILL BEAR THE RISK OF LOSS, so long as the Fund
or its agent reasonably believes, based upon reasonable verification procedures,
that the telephonic instructions are genuine. The verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations. The account holders
certify that the current prospectus for the Fund has been received and read and
that the authorizations hereon shall continue until the Fund receives written
notice of a modification signed by all appropriate parties or a termination
signed by any party. This account is subject to the terms of the Fund's
prospectus, as amended from time to time, and the terms herein set forth, and is
subject to acceptance by the Fund and to the laws of Illinois. All terms shall
be binding upon the heirs, representatives, successors and assigns of the
account holders.
All persons signing as representatives warrant as individuals that each person
signing is an authorized representative of the account holder, that the account
and privileges selected have been duly authorized, that all signatures hereon
are genuine and that the persons indicated hereon are authorized to sign.
The account holders authorize the Fund to provide the trustees or custodian of
their tax-deferred retirement plan any information necessary to administer such
a plan.
QUESTIONS
Shareholders may call 1-800-621-1048 to speak with a Kemper Shareholder Services
Representative.
Financial Representatives may call 1-800-621-5027 to speak with a Kemper Sales
Support Representative.
<PAGE> 26
INSTITUTIONAL ACCOUNT APPLICATION--SECTION I OF II
KEMPER RETIREMENT FUND SERIES VI (LOGO)
Mail to: Kemper Mutual Funds, Attention: New Applications, P.O. Box 419356,
Kansas City, MO 64141-6356
- --------------------------------------------------------------------------------
1. Your Account Registration.
NAME OF TRUSTEE(S)/AUTHORIZED SIGNER(S)
FIRST NAME M.I. LAST NAME
FIRST NAME M.I. LAST NAME
NAME OF
ORGANIZATION
- --------------------------------------------------------------------------------
2. IS THIS A RETIREMENT PLAN*? / / Yes / / No. If Yes, designate type below.
If No, complete Item 3.
<TABLE>
<S> <C>
/ / Self Directed IRA / / Defined Benefit
/ / Profit Sharing Plan / / Target Benefit
/ / Money Purchase Pension Plan / / 401k Salary Deferral
/ / Other
</TABLE>
* If each participant is to have a separate account for the contributions, call
1-800-621-1048 for special forms. Series of Kemper National Tax-Free Income
Series and Kemper State Tax-Free Income Series are not appropriate for certain
qualified plans.
- --------------------------------------------------------------------------------
3. TYPE OF ORGANIZATION. (COMPLETE IF ANSWER TO ITEM 2 ABOVE WAS NO).
<TABLE>
<S> <C> <C>
/ / Corporation / / Sole Proprietorship / / Other
/ / Partnership / / Trust
Trust Date (required)
</TABLE>
- --------------------------------------------------------------------------------
4. MAILING ADDRESS.
<TABLE>
<S> <C> <C>
Street Address
City State Zip
Tax ID No.
</TABLE>
- --------------------------------------------------------------------------------
5. AMOUNT INVESTED.
Make checks payable to Kemper Retirement
Fund--Series VI.
The minimum initial investment is $1,000 Please Do Not Write In This Space
($250 for IRA or employee benefit
accounts).*
Amount Invested $ .
*See Letter of Intent Conditions if
Item 7 selected.
- --------------------------------------------------------------------------------
6. RIGHTS OF ACCUMULATION.
Cum. Discount Number (if known). We own shares in
other Kemper Mutual Funds which may entitle this purchase to a reduced sales
charge as described in the Fund prospectus.
Existing Fund Name(s) Account Number(s)
- --------------------------------------------------------------------------------
7. LETTER OF INTENT (OPTIONAL). We agree to the Letter of Intent Conditions on
the reverse side of this application.*
We intend to invest, within a 24-month period beginning on the date hereof
(initial purchase date) in shares of the Fund purchased hereunder and one or
more of the other funds listed in Item 6 above (the "Funds"), an aggregate
amount which, together with the value of shares of any of the Funds then owned
by us, will equal or exceed the amount indicated below:
/ /$100,000 / /$250,000 / /$500,000 / /$1,000,000
* Shares of Kemper Retirement Fund--Series VI are available for a limited
offering period.
- --------------------------------------------------------------------------------
8. YOUR BROKER/DEALER.
<TABLE>
<S> <C> <C>
Representative's Phone Number
Dealer Number Branch Number Representative's Number
Firm Name Representative's Last Name
Branch Address
</TABLE>
<PAGE> 27
INSTITUTIONAL ACCOUNT APPLICATION--SECTION II OF II
- --------------------------------------------------------------------------------
9. DIVIDENDS. SHAREHOLDERS MUST REINVEST ALL DIVIDENDS TO RECEIVE THE BENEFIT OF
THE FUND'S INVESTMENT PROTECTION.
All income and capital gains dividends will be REINVESTED in the account unless
the account owner sends a written request to the Shareholder Service Agent to
have dividends reinvested as provided under "Dividends and Taxes" in the Fund's
prospectus.
- --------------------------------------------------------------------------------
10. EXCHANGES.
I authorize exchanges between Kemper Funds upon instruction from ANY PERSON by
telephone. / / Yes / / No
IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED.
- --------------------------------------------------------------------------------
11. WIRE REDEMPTIONS (OPTIONAL). PLEASE CROSS OUT THIS SECTION IF THIS
PRIVILEGE IS NOT WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from ANY PERSON for the redemption of Fund shares. Proceeds are to be wire
transferred to the bank account referenced below. ($1,000 minimum per
redemption.)
Name of Depositor
(as shown on bank records)
Name of Bank Bank Account No.
(a savings and loan or credit union may not be able to receive wire redemptions)
Address of Bank
City State Zip
- --------------------------------------------------------------------------------
12. TELEPHONE REDEMPTIONS (OPTIONAL). / / Yes / / No PLEASE CROSS OUT
THIS SECTION IF THIS PRIVILEGE IS NOT WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from ANY PERSON for the redemption of Fund shares. The amount of the redemption
shall not exceed $50,000 and the proceeds are to be payable to the shareholder
of record and mailed to the address of record.
- --------------------------------------------------------------------------------
13. CERTIFICATION AND SIGNATURE (SUBJECT TO CERTIFICATION SHOWN ON APPLICATION
GUIDE).
Under penalties of perjury, the account owner hereby certifies (1) that the Tax
I.D. Number above is correct and (2) that the account owner is not subject to
backup withholding because (a) the account owner has not been notified of being
subject to backup withholding as a result of a failure to report all interest or
dividends, or (b) the I.R.S. has provided notification that the account owner is
no longer subject to backup withholding. (Cross out (2) if it is not correct.)
<TABLE>
<S> <C> <C>
X X
Authorized Signature Title Authorized Signature Title
X
Date Authorized Signature Title
Daytime Phone #
</TABLE>
SIGNATURE GUARANTEE: REQUIRED ONLY IF ITEM 11 (WIRE REDEMPTIONS) OR ITEM 12
(TELEPHONE REDEMPTIONS) IS SELECTED. A signature guarantee must be supplied by a
commercial bank, trust company, savings and loan association, federal savings
bank, member of a national securities exchange or other eligible financial
institution.
AFFIX SIGNATURE GUARANTEE STAMP
<TABLE>
<S> <C>
Signature Guaranteed by Authorized Signature
</TABLE>
<PAGE> 28
LETTER OF INTENT ("LOI") CONDITIONS
(APPLICABLE IF ITEM 5 LETTER OF INTENT SELECTED)
The first investment hereunder must equal or exceed $1,000 or 5% of the
indicated amount, whichever is greater. The value of shares owned by me on the
initial purchase date is determined by the maximum offering price on that date.
Each investment will be made at the public offering price applicable to a single
transaction of the dollar amount indicated on the application, as described in
the applicable Fund Prospectus in effect at the time of such investment. I
understand that the levels at which reduced sales charges are available may vary
for different Funds. I agree that the sales charge schedules for the Funds are
subject to change.
I am making no commitment to purchase shares, but if my investments within 24
months from the initial purchase date do not aggregate the sum specified, I will
pay the increased amount of sales charge as prescribed below. In determining the
total amount of purchases, any shares purchased under this LOI and then sold
within the 24-month period will be deducted from my total purchases. Exchanges
between Funds will not be deducted.
Five percent (5%) of the dollar amount specified in this LOI will be held in
escrow by Kemper Distributors, Inc. (the principal underwriter) in the form of
shares of one or more of the Funds being purchased (computed to the nearest full
share at public offering price) registered in my name. All income and capital
gain dividends on the escrowed shares will be reinvested in additional shares or
paid in cash per my dividend instructions. If the shares held in escrow in
connection with this LOI are to be exchanged in accordance with the Exchange
Privilege described in the applicable Fund Prospectus, the smallest number of
full shares of the Kemper Mutual Fund to be issued on the exchange having the
same aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. If I complete the investment specified within
the 24-month period, the escrowed shares will be released.
If my total investments pursuant to this Letter are less than the amount
specified, I will remit to the principal underwriter the difference in the sales
charge actually paid and the sales charge which I would have paid if my total
investments hereunder had been made at a single time. If I do not pay such
difference in sales charge within 7 business days after written request by the
principal underwriter or my dealer, I irrevocably constitute and appoint the
principal underwriter Kemper Distributors, Inc., my attorney, with full power of
substitution, to surrender for redemption the necessary number of the escrowed
shares to realize such difference without further notice or demand. If shares of
more than one Fund are held in escrow, shares of only one Fund, or more than one
Fund, as determined in the sole discretion of the principal underwriter may be
redeemed for this purpose. In the event of a deficiency after such surrender, I
shall remain liable for such deficiency.
I agree that I or my dealer will refer to this LOI in placing any future order
for me for shares of the Fund(s) hereunder. If additional Funds are to be added
to the LOI, I or my dealer will notify the Shareholder Service Agent for the
Kemper Mutual Funds of that fact.
All purchases under this LOI must be by the same purchaser as described in the
applicable Fund Prospectus.
I agree that this LOI is subject to the terms of the applicable Fund Prospectus
that is currently in effect from time to time and that neither Kemper
Distributors, Inc. nor any Fund has any obligation to sell shares of any Fund
hereunder.
<PAGE> 29
INDIVIDUAL ACCOUNT APPLICATION GUIDE
KEMPER RETIREMENT FUND SERIES VI
INSTRUCTIONS
Please make sure you are using the correct application. Use the Individual
Account Application for Individual, Joint Owners and Transfer to Minor accounts.
Use the Institutional Account Application for Corporate, Trust or other
Fiduciary accounts. This application cannot be used for any modification of an
existing account. This application also cannot be used to establish an
Individual Retirement Account (IRA) with Investors Fiduciary Trust Company as
trustee. To obtain an IRA application, or forms to modify your account, call
1-800-621-1048.
- - Please print information exactly as you wish it to appear on the account.
- - Please check the box that is applicable to the type of account you are
opening.
- - Please insure that the social security number for a joint account is for the
FIRST named registrant and for a transfer to minor account is for the MINOR.
- - PLEASE BE SURE TO COMPLETE BOTH SECTIONS I AND II.
- - PLEASE BE SURE TO SIGN THIS APPLICATION. If the account is registered in the
name of:
- an individual, the individual must sign.
- joint owners, all must sign.
- a custodian for a minor, the custodian must sign.
READ THIS IMPORTANT INFORMATION
FUND FEATURES
Exchanges. If you elect this option:
- You are authorizing exchanges between Kemper Mutual Funds by ANY
PERSON by telephone.
- Shares held in certificated form may not be exchanged until they
have been received by the Fund's Shareholder Service Agent and
deposited to the account.
- If exchanging to a new account, the minimum requirement is $1,000.
- Subsequent exchanges may be made for $100 or more.
Systematic Withdrawal Plans. If you elect this option:
- Shares may not be held in certificated form.
- Your account value must be at least $5,000.
- All dividends will be reinvested.
Wire Redemptions. If you elect this option:
- You are authorizing the Fund or its agents to honor telephone or
other instructions from ANY PERSON for the redemption of Fund
shares. Proceeds will be wire transferred to the bank account
referenced on the application.
- Shares held in certificated form may not be redeemed under this
privilege.
- The amount redeemed must be at least $1,000.
CERTIFICATION
The account holders certify that they have the power and authority to establish
this account and select the privileges requested. Account holders can request
the following telephone privileges on this application: expedited wire transfer
redemption and telephone exchange transactions. Please note that the telephone
exchange privilege is automatic unless the account holder refuses it. Neither
the Fund nor its agents will be liable for any loss, expense or cost arising out
of any telephone request pursuant to these privileges, including any fraudulent
or unauthorized request, and THE ACCOUNT HOLDER WILL BEAR THE RISK OF LOSS, so
long as the Fund or its agent reasonably believes, based upon reasonable
verification procedures, that the telephonic instructions are genuine. The
verification procedures include recording instructions, requiring certain
identifying information before acting upon instructions, and sending written
confirmations. The account holders certify that the current prospectus for the
Fund has been received and read and that the authorizations hereon shall
continue until the Fund receives written notice of a modification signed by all
appropriate parties or a termination signed by any party. This account is
subject to the terms of the Fund's prospectus, as amended from time to time, and
the terms herein set forth, and is subject to acceptance by the Fund and to the
laws of Illinois. All terms shall be binding upon the heirs, representatives and
assigns of the account holders.
QUESTIONS
Shareholders may call 1-800-621-1048 to speak with a Kemper Shareholder Services
Representative.
Financial Representatives may call 1-800-621-5027 to speak with a Kemper Sales
Support Representative.
<PAGE> 30
INDIVIDUAL ACCOUNT APPLICATION--SECTION I OF II
KEMPER RETIREMENT FUND SERIES VI (LOGO)
MAIL TO: KEMPER MUTUAL FUNDS, ATTENTION: NEW APPLICATIONS, P.O. BOX 419356,
KANSAS CITY, MO 64141-6356
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/ / INDIVIDUAL FIRST NAME M.I. LAST NAME
OR
/ / JOINT TENANT* FIRST NAME M.I. LAST NAME
FIRST NAME M.I. LAST NAME
/ / TRANSFER TO A Custodian's Name Minor's Name
MINOR
(only one permitted) (only one permitted)
* Joint accounts will be registered as joint tenants with rights of survivorship unless otherwise indicated.
</TABLE>
- --------------------------------------------------------------------------------
2. YOUR MAILING ADDRESS.
<TABLE>
<CAPTION>
<S> <C>
Street Address Apt. #
City State Zip
I am a citizen of / / U.S. / / Other (Please specify) Social Security No.
(for first registrant or minor)
</TABLE>
- --------------------------------------------------------------------------------
3. AMOUNT INVESTED.
Please Do Not Write In This Space
Make checks payable to Kemper
Retirement Fund--Series VI. The
minimum initial investment is $1,000.*
Amount Invested $ .
* See Letter of Intent Conditions if Item 5 selected.
- --------------------------------------------------------------------------------
4. DIVIDENDS. SHAREHOLDERS MUST REINVEST ALL DIVIDENDS TO RECEIVE THE BENEFIT OF
THE FUND'S INVESTMENT PROTECTION.
All income and capital gains dividends will be REINVESTED in the account unless
the account owner sends a written request to the Shareholder Service Agent to
have dividends reinvested as provided under "Dividends and Taxes" in the Fund's
prospectus.
- --------------------------------------------------------------------------------
5. LETTER OF INTENT (OPTIONAL). I agree to the Letter of Intent Conditions on
the reverse side of this application.*
I intend to invest, within a 24-month period beginning on the date hereof
(initial purchase date) in shares of the Fund purchased hereunder and one or
more of the other funds listed in Item 7 (the "Funds"), an aggregate amount
which, together with the value of shares of any of the Funds then owned by me,
will equal or exceed the amount indicated below:
/ /$100,000 / /$250,000 / /$500,000 / /$1,000,000
* The shares of Kemper Retirement Fund--Series VI are available for a limited
offering period.
- --------------------------------------------------------------------------------
6. YOUR BROKER/DEALER.
<TABLE>
<S> <C> <C>
Representative's Phone Number
Dealer Number Branch Number Representative's Number
Firm Name Representative's Last Name
Branch Address
</TABLE>
<PAGE> 31
TEAR OUT COMPLETED APPLICATION
INDIVIDUAL ACCOUNT APPLICATION--SECTION II OF II
- --------------------------------------------------------------------------------
7. RIGHTS OF ACCUMULATION.
Cum. Discount Number (if known). I own shares in
other Kemper Mutual Funds which may entitle this purchase to have a reduced
sales charge as described in the Fund prospectus.
Existing Fund Name(s) Account Number(s)
- --------------------------------------------------------------------------------
8. EXCHANGES.
I authorize exchanges between Kemper Funds upon instruction from ANY PERSON by
telephone. / / Yes / / No
IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED.
- --------------------------------------------------------------------------------
9. SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL). SHAREHOLDERS MUST HOLD THEIR SHARES TO
THE MATURITY DATE TO RECEIVE THE BENEFIT OF THE FUND'S INVESTMENT
PROTECTION. PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT WANTED.
Please establish a Systematic Withdrawal Plan to begin:
(Month, Year) for my account established by this Application. The payment ($100
minimum) may be either a specified dollar amount or an annualized percentage of
the net asset value of the account as determined by a monthly valuation.
<TABLE>
<CAPTION>
Withdrawal Amount
or Annualized
Percentage Payment Frequency Send Check to
<S> <C> <C> <C> <C> <C>
/ / Monthly / / Quarterly / / Semi-Annually / / Annually / / Acc't registration
<CAPTION>
Withdrawal Amount
or Annualized
Percentage
<S> <C>
/ / Special
</TABLE>
Please send the Systematic Withdrawal Plan check to (check above; IF NO SPECIAL
PAYEE, PAYMENT WILL BE SENT TO ACCOUNT REGISTRATION ADDRESS):
Special Payee Address:
Name Account No. (if applicable)
Address
City State Zip
- --------------------------------------------------------------------------------
10. WIRE REDEMPTIONS (OPTIONAL). PLEASE CROSS OUT THIS SECTION IF THIS
PRIVILEGE IS NOT WANTED.
I authorize the Fund or its agents to honor telephone or other instructions from
ANY PERSON for the redemption of Fund shares. Proceeds are to be wire
transferred to the bank account referenced below. ($1,000 minimum per
redemption.)
Name of Depositor
(as shown on bank records)
Name of Bank Bank Account No.
(a savings and loan or credit union may not be able to receive wire redemptions)
Address of Bank
City State Zip
- --------------------------------------------------------------------------------
11. CERTIFICATION AND SIGNATURE (SUBJECT TO CERTIFICATION SHOWN ON APPLICATION
GUIDE).
Under penalties of perjury, the undersigned hereby certify (1) that the Social
Security Number above is correct and (2) that the account owner is not subject
to backup withholding because (a) the account owner has not been notified of
being subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the I.R.S. has provided notification that the
account owner is no longer subject to backup withholding. (Cross out (2) if it
is not correct.)
<TABLE>
<CAPTION>
X X
<S> <C>
Signature Co-Owner (if applicable)
X
Date Co-Owner (if applicable)
Daytime Phone #
</TABLE>
<PAGE> 32
LETTER OF INTENT ("LOI") CONDITIONS
(APPLICABLE IF ITEM 7 LETTER OF INTENT SELECTED)
The first investment hereunder must equal or exceed $1,000 or 5% of the
indicated amount, whichever is greater. The value of shares owned by us on the
initial purchase date is determined by the maximum offering price on that date.
Each investment will be made at the public offering price applicable to a single
transaction of the dollar amount indicated on the application, as described in
the applicable Fund Prospectus in effect at the time of such investment. We
understand that the levels at which reduced sales charges are available may vary
for different Funds. We agree that the sales charge schedules for the Funds are
subject to change.
We are making no commitment to purchase shares, but if our investments within 24
months from the initial purchase date do not aggregate the sum specified, we
will pay the increased amount of sales charge as prescribed below. In
determining the total amount of purchases, any shares purchased under this LOI
and then sold within the 24-month period will be deducted from our total
purchases. Exchanges between Funds will not be deducted.
Five percent (5%) of the dollar amount specified in this LOI will be held in
escrow by Kemper Distributors, Inc. (the principal underwriter) in the form of
shares of one or more of the Funds being purchased (computed to the nearest full
share at public offering price) registered in our name. All income and capital
gain dividends on the escrowed shares will be reinvested in additional shares or
paid in cash per our dividend instructions. If the shares held in escrow in
connection with this LOI are to be exchanged in accordance with the Exchange
Privilege described in the applicable Fund Prospectus, the smallest number of
full shares of the Kemper Mutual Fund to be issued on the exchange having the
same aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. If we complete the investment specified
within the 24-month period, the escrowed shares will be released.
If our total investments pursuant to this Letter are less than the amount
specified, we will remit to the principal underwriter the difference in the
sales charge actually paid and the sales charge which we would have paid if our
total investments hereunder had been made at a single time. If we do not pay
such difference in sales charge within 7 business days after written request by
the principal underwriter or our dealer, we irrevocably constitute and appoint
the principal underwriter Kemper Distributors, Inc., our attorney, with full
power of substitution, to surrender for redemption the necessary number of the
escrowed shares to realize such difference without further notice or demand. If
shares of more than one Fund are held in escrow, shares of only one Fund, or
more than one Fund, as determined in the sole discretion of the principal
underwriter may be redeemed for this purpose. In the event of a deficiency after
such surrender, we shall remain liable for such deficiency.
We agree that we or our dealer will refer to this LOI in placing any future
order for us for shares of the Fund(s) hereunder. If additional Funds are to be
added to the LOI, we or our dealer will notify the Shareholder Service Agent for
the Kemper Mutual Funds of that fact.
All purchases under this LOI must be by the same purchaser as described in the
applicable Fund Prospectus.
We agree that this LOI is subject to the terms of the applicable Fund Prospectus
that is currently in effect from time to time and that neither Kemper
Distributors, Inc. nor any Fund has any obligation to sell shares of any Fund
hereunder.
<PAGE> 33
KEMPER
RETIREMENT
FUND
SERIES VI
PROSPECTUS
AND APPLICATION
MAY 1, 1995
(LOGO)
INVESTMENT MANAGER
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
1-800-621-1048
KRF-1 5/95 (LOGO)printed on recycled paper
(LOGO)
KEMPER
<PAGE> 34
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
KEMPER RETIREMENT FUND SERIES VI
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Kemper Retirement Fund Series VI (the
"Fund") dated May 1, 1995. The prospectus may be obtained without charge from
the Fund. The Fund is a series of Kemper Target Equity Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------
<S> <C>
Investment Restrictions............................................ B-1
Investment Policies and Techniques................................. B-2
Dividends and Taxes................................................ B-9
Performance........................................................ B-11
Investment Manager and Underwriter................................. B-11
Portfolio Transactions............................................. B-13
Purchase and Redemption of Shares.................................. B-14
Officers and Trustees.............................................. B-15
Shareholder Rights................................................. B-16
Report of Independent Auditors..................................... B-18
Statement of Net Assets............................................ B-18
</TABLE>
KRF 13 5/95 (LOGO)printed on recycled paper
<PAGE> 35
INVESTMENT RESTRICTIONS
Kemper Target Equity Fund (the "Trust") has adopted the following fundamental
investment restrictions which cannot be changed with respect to Kemper
Retirement Fund Series VI (the "Fund"), without approval of a "majority" of its
outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy; or (2) more than 50% of the Fund's
outstanding shares.
The Fund may not, as a fundamental policy:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction 4
above. (The collateral arrangements with respect to options, financial futures
and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or other assets or maintain a short position
for the account of the Fund unless at all times when a short position is open it
owns an equal amount of such securities or other assets or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities or other assets of the same issue as, and equal in
amount to, the securities or other assets sold short and unless not more than
10% of the Fund's total assets is held as collateral for such sales at any one
time.
(8) Write or sell put or call options, combinations thereof or similar options;
nor may the Fund purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options, combinations
thereof or similar options; however, the Fund may buy or sell options on
financial futures contracts.
(9) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Trust or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if as a result of such purchase
25% or more of the Fund's total assets would be invested in any one industry.
B-1
<PAGE> 36
(12) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including real estate limited
partnerships), although it may invest in securities which are secured by real
estate and securities of issuers which invest or deal in real estate including
real estate investment trusts.
(13) Invest in interests in oil or gas exploration or development programs,
although it may invest in the securities of issuers which invest in or sponsor
such programs.
(14) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(15) Issue senior securities as defined in the Investment Company Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number (4) in the latest
fiscal period and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval.
The Fund may not, as a non-fundamental policy:
(i) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(ii) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(iii) Invest in oil, gas or other mineral leases.
(iv) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation and equity securities of issuers which are not
readily marketable.
(v) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities will not exceed 10% of total
assets.
(vi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The Fund may invest in Zero Coupon Treasuries and Equity Securities (as
defined in the prospectus) and engage in futures and options transactions and
other investment techniques in accordance with its investment objectives and
policies. See "Investment Objectives, Policies and Risk Factors" in the
prospectus. Supplemental information concerning the Fund's investments and
certain investment techniques is set forth below.
ZERO COUPON TREASURIES. There are currently two basic types of zero coupon
securities, those created by separating the interest and principal components of
a previously issued interest-paying security and those originally issued in the
form of a face amount only security paying no interest. Zero coupon securities
of the U.S. Government and certain of its agencies and instrumentalities and of
private corporate issuers are currently available, although the Fund will
purchase only those that represent direct obligations of the U.S. Government.
B-2
<PAGE> 37
Zero coupon securities of the U.S. Government that are currently available are
called STRIPS (Separate Trading of Registered Interest and Principal of
Securities) or CUBES (Coupon Under Book-Entry Safekeeping). STRIPS and CUBES are
issued under programs introduced by the U.S. Treasury and are direct obligations
of the U.S. Government. The U.S. Government does not issue zero coupon
securities directly. The STRIPS program, which is ongoing, is designed to
facilitate the secondary market stripping of selected Treasury notes and bonds
into individual interest and principal components. Under the program, the U.S.
Treasury continues to sell its notes and bonds through its customary auction
process. However, a purchaser of those notes and bonds who has access to a
book-entry account at a Federal Reserve bank may separate the specified Treasury
notes and bonds into individual interest and principal components. The selected
Treasury securities may thereafter be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the separate trading
and ownership of the interest and principal payments. The Federal Reserve does
not charge a fee for this service; however, the book-entry transfer of interest
or principal components is subject to the same fee schedule generally applicable
to the transfer of Treasury securities.
Under the program, in order for a book-entry Treasury security to be separated
into its component parts, the face amount of the security must be an amount
which, based on the stated interest rate of the security, will produce a
semi-annual interest payment of $1,000 or a multiple of $1,000. Once a
book-entry security has been separated, each interest and principal component
may be maintained and transferred in multiples of $1,000 regardless of the face
amount initially required for separation or the resulting amount required for
each interest payment.
CUBES, like STRIPS, are direct obligations of the U.S. Government. CUBES are
coupons that have previously been physically stripped from Treasury notes and
bonds, but which were deposited with the Federal Reserve and are now carried and
transferable in book-entry form only. Only stripped Treasury coupons maturing on
or after January 15, 1988, that were stripped prior to January 5, 1987, were
eligible for conversion to book-entry form under the CUBES program.
Investment banks may also strip Treasury securities and sell them under
proprietary names. These securities may not be as liquid as STRIPS and CUBES and
the Fund has no present intention of investing in these instruments.
STRIPS and CUBES are purchased at a discount from $1,000. Absent a default by
the U.S. Government, a purchaser will receive face value for each of the STRIPS
and CUBES provided the STRIPS and CUBES are held to their due dates. While
STRIPS and CUBES can be purchased on any business day, they all currently come
due on February 15, May 15, August 15 or November 15.
FINANCIAL FUTURES CONTRACTS. The Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, or an
amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written. The Fund will not enter into any futures contracts or
options on futures contracts if the aggregate of the contract value of the
outstanding futures contracts of the Fund and futures contracts subject to
outstanding options written by the Fund would exceed 50% of the total assets of
the Fund.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities or other assets, in most cases a party
will close out the contractual commitment before delivery without having to make
or take delivery of the underlying assets by purchasing (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, if effected through a member
B-3
<PAGE> 38
of an exchange, cancels the obligation to make or take delivery of the
securities or other assets. All transactions in the futures market are made,
offset or fulfilled through a clearing house associated with the exchange on
which the contracts are traded. The Fund will incur brokerage fees when it
purchases or sells contracts, and will be required to maintain margin deposits.
At the time the Fund enters into a futures contract, it is required to deposit
with its custodian, on behalf of the broker, a specified amount of cash or
eligible securities, called "initial margin." The initial margin required for a
futures contract is set by the exchange on which the contract is traded.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates. The
costs incurred in connection with futures transactions could reduce the Fund's
return. Futures contracts entail risks. If the investment manager's judgment
about the general direction of markets or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. The Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities" below. Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. The Fund may invest in put and call options on
securities. The Fund will only invest in options which are traded on securities
exchanges and for which it pays a premium (cost of option). The Fund may enter
into closing transactions, exercise its options or permit them to expire. A put
option gives the holder (buyer) the "right to sell" a security at a specified
price (the exercise price) at any time until a certain date (the expiration
date). A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). The Fund may purchase spread options which are options for
which the exercise price may be a fixed dollar spread or yield spread between
the security underlying the option and another security it does not own, but
that is used as a bench mark. Options traded on national securities exchanges
are issued by The Options Clearing Corporation.
In effect, the buyer of a put option who also owns the related security is
protected by ownership of the put option against any decline in that security's
price below the exercise price less the amount paid for the option. The ability
to purchase put options allows the Fund to protect capital gains in an
appreciated security it owns, without being required to sell that security.
B-4
<PAGE> 39
At times the Fund may wish to establish a position in a security upon which call
options are available. By purchasing a call option the Fund is able to fix the
cost of acquiring the security, this being the cost of the call option plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market because the Fund would be at risk only for
the amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
When the Fund purchases a call option it pays a premium. The Fund will benefit
only if the market price of the related investment is above the call price plus
the premium during the exercise period and the call is either exercised or sold
at a profit. If it is not exercised or sold, it will become worthless at its
expiration date and the Fund will lose its premium payment. If the Fund buys a
put option, it also pays a premium. If the market price of the related
investment is above the exercise price and, as a result, the put is not
exercised or sold, the put will become worthless at its expiration date.
OPTIONS ON SECURITIES INDICES. The Fund also may purchase call and put options
on securities indices in an attempt to hedge against market conditions affecting
the value of securities that the Fund owns or intends to purchase, and not for
speculation. Through the purchase of index options, the Fund can achieve many of
the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market) rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of an
index since the prices of such securities may be affected by somewhat different
factors. Therefore, the Fund bears the risk that a loss on an index option would
not be completely offset by movements in the price of such securities.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract or entering into a forward foreign
currency exchange purchase, the Fund will maintain in a segregated account cash,
U.S. Government securities or liquid high-grade debt obligations equal to the
value of such contracts. The Fund will use cover in connection with selling a
futures contract.
The Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities or other assets which the
Fund holds or intends to purchase.
FOREIGN SECURITIES. Although the Fund will invest primarily in securities that
are publicly traded in the United States, it has the discretion to invest a
portion of its assets in foreign securities that are traded principally in
securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to
less than 10% of its total assets. As discussed below, American Depository
Receipts are publicly traded in the United States and, therefore, are not
subject to the preceding limitation. The Fund intends to invest in foreign
securities that are not publicly traded in the United States only when the
potential benefits to the Fund are deemed to outweigh the risks.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the dollar falls against such currency. Fluctuations in exchange
rates may also affect the earning
B-5
<PAGE> 40
power and asset value of the foreign entity issuing the security. Dividend and
interest payments may be repatriated based on the exchange rate at the time of
disbursement, and restrictions on capital flows may be imposed.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for foreign securities may be less liquid. In
addition, there may be less publicly available information about foreign issuers
than about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
Settlement of Foreign Securities trades may take longer and present more risk
than for domestic securities. With respect to certain foreign countries, there
is a possibility of expropriation or diplomatic developments that could affect
investment in these countries. Losses and other expenses may be incurred in
converting between various currencies in connection with purchases and sales of
foreign securities.
Emerging Markets. While the Fund's investments in foreign securities will
principally be in developed countries, the Fund may invest a portion of its
assets in developing or "emerging" markets, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A 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 the Fund's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop,
the Fund may expand and further broaden the group of emerging markets in which
it invests. In the past, markets of developing countries have been more volatile
than the markets of developed countries; however, such markets often have
provided higher rates of return to investors. The investment manager believes
that these characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct
B-6
<PAGE> 41
such transactions. Such settlement problems may cause emerging market securities
to be illiquid. The inability of the Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Certain
emerging markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of 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 cost
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
Privatized Enterprises. The governments of certain foreign countries have, to
varying degrees, embarked on privatization programs contemplating the sale of
all or part of their interests in state enterprises. The Fund's investments in
the securities of privatized enterprises include privately negotiated
investments in a government- or state-owned or controlled company or enterprise
that has not yet conducted an initial equity offering, investments in the
initial offering of equity securities of a state enterprise or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
B-7
<PAGE> 42
Depository Receipts. For many foreign securities, there are U.S.
Dollar-denominated American Depository Receipts ("ADRs"), which are bought and
sold in the United States and are generally 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. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund will
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for most ADRs.
The Fund may also invest in European Depository Receipts ("EDRs"), which are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and are designed for use in the European securities markets. EDRs are not
necessarily denominated in the currency of the underlying security.
FOREIGN CURRENCY TRANSACTIONS. As indicated above (see "Foreign Securities"),
the Fund may invest a limited portion of its assets in securities denominated in
foreign currencies. The value of the assets of the Fund invested in such
securities as measured in U.S. Dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies. The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
By entering into a forward contract in U.S. Dollars for the purchase or sale of
the amount of foreign currency involved in an underlying security transaction,
the Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. Dollar and such foreign currency. However, this tends to limit gains
which might result from a positive change in such currency relationships.
When KFS believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. Dollar, it may enter into a forward
contract to sell an amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
It is extremely difficult to forecast short-term currency market movements, and
whether such a short-term hedging strategy would be successful is highly
uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any gain
which might result should the value of such currency increase. The Fund may have
to convert its holdings of foreign currencies into U.S. Dollars from time to
time in order to meet such needs as Fund expenses and redemption requests.
B-8
<PAGE> 43
The Fund does not enter into forward contracts or maintain a net exposure in
such contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency. The Fund does not intend to enter into
forward contracts for the purchase of a foreign currency if the Fund would have
more than 5% of the value of its total assets committed to such contracts. The
Fund segregates cash or liquid high-grade securities in an amount not less than
the value of the Fund's total assets committed to forward foreign currency
exchange contracts entered into for the purchase of a foreign currency. If the
value of the securities segregated declines, additional cash or securities are
added so that the segregated amount is not less than the amount of the Fund's
commitments with respect to such contracts. The Fund generally does not enter
into a forward contract with a term longer than one year.
The Fund may also hedge its foreign currency exchange rate risk by engaging in
foreign currency financial futures transactions and by purchasing foreign
currency options. A foreign currency call rises in value if the underlying
currency appreciates. Conversely, a put rises in value if the underlying
currency depreciates. Through the purchase or sale of foreign currency financial
futures contracts, the Fund may be able to achieve many of the same objectives
as through forward foreign currency exchange contracts more effectively and
perhaps at a lower cost. Unlike forward foreign currency exchange contracts,
foreign currency futures contracts and options on foreign currency futures
contracts are standardized as to amount and delivery period and are traded on
boards of trade and commodities exchanges. Such contracts may provide greater
liquidity and lower cost than forward foreign currency exchange contracts. For
additional information concerning options transactions and financial futures
transactions, please see "Investment Objectives, Policies and Risk
Factors--Additional Investment Information" in the prospectus and related
subsections above under "Investment Policies and Techniques."
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities 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. The Fund currently does not intend to invest more than 5% of
its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for
the purpose of deferring realization of gain or loss for federal income tax
purposes. A short sale "against-the-box" is a short sale in which the Fund owns
at least an equal amount of the securities or other assets sold short or
securities convertible into or exchangeable for, without payment of any further
consideration, securities or other assets of the same issue as, and at least
equal in amount to, the securities or other assets sold short. The Fund may
engage in such short sales only to the extent that not more than 10% of the
Fund's total assets (determined at the time of the short sale) is held as
collateral for such sales. The Fund currently does not intend, however, to
engage in such short sales to the extent that more than 5% of its net assets
will be held as collateral therefor during the current year.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund will normally distribute annual dividends of net investment
income and any net realized short-term and long-term capital gains. The Fund may
at any time vary the foregoing dividend practice and, therefore, reserves the
right from time to time either to distribute or to retain for reinvestment such
of its net investment income and its net short-term and long-term capital gains
as the Board of Trustees of the Trust determines appropriate under then current
circumstances. In particular, and without limiting the foregoing, the 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 unless shareholders indicate in writing that they wish to receive
them in cash or in shares of other Kemper Funds. As reflected in the prospectus
(see "Dividends and Taxes"), shareholders must
B-9
<PAGE> 44
reinvest all dividends and hold their shares until the Maturity Date in order to
be assured of the benefit of the Fund's Investment Protection.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, will not be liable for federal
income taxes to the extent its earnings are distributed. One of the Subchapter M
requirements to be satisfied is that less than 30% of the Fund's gross income
during the fiscal year must be derived from gains (not reduced by losses) from
the sale or other disposition of securities and certain other investments held
for less than three months. The Fund may be limited in its options, futures and
foreign currency transactions in order to prevent recognition of such gains.
The Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
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 the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A portion of the ordinary income dividends from the Fund may be eligible for the
dividends received deduction available to corporate shareholders. The aggregate
amount eligible for the dividends received deduction may not exceed the
aggregate qualifying dividends received by the Fund for the fiscal year.
A shareholder who redeems shares of the Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of the Fund or any other Kemper Mutual Fund listed in the
prospectus under "Special Features--Combined Purchases" may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described in the prospectus under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If the redeemed shares were held less than 91
days, then the lesser of (a) the sales charge waived on the reinvestment shares,
or (b) the sales charge incurred on the redeemed shares, is included in the
basis of the reinvestment shares and is not included in the basis of the
redeemed shares. If a shareholder realizes a loss on the redemption or exchange
of Fund shares and reinvests in Fund shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the wash sale rules
resulting in a postponement of the recognition of such loss for federal income
tax purposes. An exchange of Fund shares for shares of another fund is treated
as a redemption and reinvestment for federal income tax purposes.
B-10
<PAGE> 45
PERFORMANCE
As described in the prospectus, the Fund's historical performance or return may
be shown in the form of "average annual total return" and "total return"
figures. These various measures of performance are described below.
The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the 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, and computing the "redeemable value" of that investment at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial Highlights" table in the Fund's
financial statements. Total return performance for a specific period is
calculated by first taking an investment (normally assumed to be $10,000)
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge, 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 calculation assumes that all income
and capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge would be reduced if such charge were included.
The Fund's performance figures are based upon historical results and are not
representative of future performance. The Fund's shares are sold at net asset
value plus a maximum sales charge of 5.0% of the offering price. Returns and net
asset value will fluctuate. Factors affecting the 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 returns described in this section. Shares of the Fund are redeemable at
the then current net asset value, which may be more or less than original cost.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the Fund's investment manager. Pursuant to
an investment management agreement, KFS acts as the Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical, bookkeeping and administrative
services, and permits any of its officers or employees to serve without
compensation as trustees or officers of the Trust if elected to such positions.
The investment management agreement provides that the Fund shall pay the charges
and expenses of its operations, including the fees and expenses of the trustees
(except those who are officers or employees of KFS), independent auditors,
counsel, custodian and transfer agent and the cost of share certificates,
reports and notices to shareholders, brokerage commissions or transaction costs,
costs of calculating net asset value, taxes and membership dues. The Fund bears
the expenses of registration of its shares with the Securities and Exchange
Commission, while the principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states. Kemper Retirement Fund Series I, Series II, Series
III, Series IV and Series V (which are no longer being offered), and the Fund
are subject to the investment management agreement. The Trust's expenses are
generally allocated among the series on the basis of relative net assets at the
time of allocation, except that expenses directly attributable to a particular
series are charged to that series.
The Fund pays KFS an investment management fee, payable monthly, at an annual
rate of .50 of 1% of average daily net assets of the Fund. KFS has agreed to
reimburse the Fund to the extent required by applicable state expense
B-11
<PAGE> 46
limitations should all operating expenses of the Fund, including the investment
management fees of KFS but excluding taxes, interest, distribution fees,
extraordinary expenses, brokerage commissions or transaction costs and any other
properly excludable expenses, exceed the applicable state expense limitations.
The Fund believes that the most restrictive state expense limitation currently
in effect would require that such operating expenses not exceed 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million. Under such state expense
limitation, custodian costs attributable to foreign securities that are in
excess of similar domestic custodian costs are excluded from operating expenses.
The investment management agreement provides that KFS shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
KFS in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement.
The investment management agreement continues in effect from year to year for
each series subject to the agreement so long as its continuation is approved at
least annually by (a) a majority of the trustees who are not parties to such
agreement or interested persons of any such party except in their capacity as
trustees of the Trust and (b) by the shareholders of each series or the Board of
Trustees. It may be terminated at any time upon 60 days' notice by either party,
or by a majority vote of the outstanding shares of a series with respect to that
series, and will terminate automatically upon assignment. If continuation is not
approved for a series, the investment management agreement nevertheless may
continue in effect for the series for which it is approved and KFS may continue
to serve as investment manager for the series for which it is not approved to
the extent permitted by the Investment Company Act of 1940. The management fee
and the expense limitation are computed based upon the average daily net assets
of all series subject to the agreement and are allocated among such series based
upon the relative net assets of each such series. Additional series may be
subject to the same or a different agreement. Kemper Worldwide 2004 Fund, a
series of the Trust, has a different agreement.
PRINCIPAL UNDERWRITER. Kemper Distributors, Inc. ("KDI"), an affiliate of KFS,
is the principal underwriter for shares of the Trust and acts as agent of the
Trust in the continuous offering of its shares. The Trust pays the cost for the
prospectus and shareholder reports to be set in type and printed for existing
shareholders, and KDI 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. Terms of
continuation, termination and assignment under the underwriting agreement are
identical to those described above with regard to the investment management
agreement, except that termination other than upon assignment requires six
months' notice and continuation, amendment and termination need not be on a
series by series basis.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Trust 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 the Trust, including the payment of any service fees.
The Trust pays KDI an administrative services fee, payable monthly, at the
annual rate of up to .25 of 1% of average daily net assets of the Trust.
KDI enters into related arrangements with various financial services firms, such
as broker-dealers or banks ("firms"), that provide services and facilities for
their customers or clients who are shareholders of the Trust. The firms shall
provide such office space and equipment, telephone facilities and personnel as
is necessary or appropriate for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Trust, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI pays such firms a
service fee, payable quarterly, at an annual rate of up to .25 of 1% of the net
assets in Trust accounts that they maintain and service commencing with the
month after investment. Firms to which service fees may be paid include
broker-dealers affiliated with KDI.
B-12
<PAGE> 47
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 Trust. Currently, the
administrative services fee payable to KDI is based only upon Trust assets in
accounts for which there is a firm listed on the Trust's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Trust to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of the Trust
while this procedure is in effect would depend upon the proportion of Trust
assets that is in accounts for which there is a firm of record. The Board of
Trustees of the Trust, in its discretion, may approve basing the fee to KDI on
all Trust assets in the future.
Certain trustees or officers of the Trust are also directors or officers of KFS
and/or KDI as indicated under "Officers and Trustees."
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
the United Missouri Bank, n.a., Tenth and Grand Streets, Kansas City, Missouri
64106 and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodians, have custody of all securities and cash
of the Trust maintained in the United States. The Chase Manhattan Bank, N.A.,
Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of
all securities and cash of the Trust held outside the United States. They attend
to the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund. IFTC is also the Trust's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSVC"), an affiliate of KFS, serves as
"Shareholder Service Agent" of the Fund, and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives from the Fund
as transfer agent, and pays to KSVC, annual account fees of $6 per account plus
account set up, transaction, maintenance and disaster recovery charges and
out-of-pocket expense reimbursement. IFTC's fee is reduced by certain earnings
credits in favor of the Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Trust's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
KFS is the investment manager for the Kemper Funds and KFS and its affiliates
also furnish investment management services to other clients including Kemper
Corporation and the Kemper insurance companies. KFS is the sole shareholder of
Kemper Asset Management Company and Kemper Investment Management Company
Limited. These three entities share some common research and trading facilities.
At times investment decisions may be made to purchase or sell the same
investment securities for the Fund and for one or more of the other clients
advised by KFS. When two or more of such clients are simultaneously engaged in
the purchase or sale of the same security, the transactions are allocated as to
amount and price in a manner considered equitable to each and so that each
receives, to the extent practicable, the average price of such transactions.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities and options and futures contracts available to the Fund. On
the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Trustees
of the Trust believes that the benefits of KFS's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.
KFS, in effecting purchases and sales of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders,
which includes best net prices, except to the extent that KFS may be permitted
to pay higher brokerage commissions for research services as described below.
Consistent with this
B-13
<PAGE> 48
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, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and KFS. Any research benefits derived are available for all clients,
including clients of affiliated companies. Since it is only supplementary to
KFS's own research efforts and must be analyzed and reviewed by KFS's staff, the
receipt of research information is not expected to materially reduce expenses.
In selecting among firms believed to meet the criteria for handling a particular
transaction, KFS may give consideration to those firms that have sold or are
selling shares of the Fund and other funds managed by KFS, as well as to those
firms that provide market, statistical and other research information to the
Fund and KFS, although KFS is not authorized to pay higher commissions or, in
the case of principal trades, higher prices to firms that provide such services,
except as provided below.
KFS may in certain instances be permitted to pay higher brokerage commissions
(not including principal trades) solely for receipt of market, statistical and
other research services. Subject to Section 28(e) of the Securities Exchange Act
of 1934 and procedures adopted by the Board of Trustees of the Trust, the Fund
could pay a firm that provides research services to KFS commissions for
effecting a securities transaction for the Fund in excess of the amount other
firms would have charged for the transaction if KFS determines in good faith
that the greater commission is reasonable in relation to the value of the
research services provided by the executing firm viewed in terms either of a
particular transaction or KFS's overall responsibilities to the Fund or other
clients. Research benefits will be available for all clients of KFS and its
subsidiaries. The investment management fee paid by the Fund to KFS is not
reduced because KFS receives these research services.
PURCHASE AND REDEMPTION OF SHARES
During the Offering Period described in the prospectus (see "Purchase of
Shares"), Fund shares are sold at their public offering price, which is the net
asset value next determined after an order is received in proper form plus a
sales charge as described in the Fund's prospectus. The minimum initial
investment is $1,000 and the minimum subsequent investment is $100, but such
minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such determination
will vary and cannot be determined in advance. The amount received by a
shareholder upon redemption or repurchase may be more or less than the amount
paid for such shares depending on the market value of the Fund's portfolio
securities at the time; provided, however, shareholders who hold their shares to
the Maturity Date and reinvest their dividends will receive the benefit of the
Fund's Investment Protection.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares will be redeemed by the Fund at the applicable net asset value as
described in the Fund's prospectus. The redemption within one year of shares
purchased at net asset value under the Large Order NAV Purchase Privilege
described in the prospectus may be subject to a 1% contingent deferred sales
charge (see "Purchase of Shares" in the prospectus). When the Fund is asked to
redeem shares for which it may not yet have received good payment, it may delay
the mailing of a redemption check until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 15 days.
Scheduled variations in or the elimination of the sales charge for purchases by
certain classes of persons or through certain types of transactions as described
in the prospectus is provided because of expected economies in sales and
sales-related efforts.
The 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 the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably
B-14
<PAGE> 49
practicable for the Fund to determine the value of its net assets, or (c) for
such other periods as the Securities and Exchange Commission may by order permit
for the protection of the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees 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 Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees 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. The Trust has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder of record.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their principal occupations and their
affiliations, if any, with Kemper Financial Services, Inc., the Fund's
investment adviser and Kemper Distributors, Inc., the Fund's principal
underwriter, are as follows (The number following each person's title is the
number of investment companies managed by Kemper Financial Services, Inc. for
which he or she holds similar positions):
ARTHUR R. GOTTSCHALK, Trustee (10), 10642 Brookridge Drive, Frankfort, Illinois;
Retired; formerly, President, Illinois Manufacturers Association; Trustee,
Illinois Masonic Medical Center; Member, Board of Governors, Heartland
Institute/Illinois; formerly, Illinois State Senator.
FREDERICK T. KELSEY, Trustee (10), 3133 Laughing Gull Court, John's Island,
South Carolina; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.
DAVID B. MATHIS, TRUSTEE* (28), Kemper Center, Long Grove, Illinois; Chairman,
Chief Executive Officer and Director of Kemper Corporation; Director, Kemper
Financial Services, Inc. and Kemper Financial Companies, Inc.; Director, IMC
Global Inc.
STEPHEN B. TIMBERS, President and Trustee* (31), 120 S. LaSalle St., Chicago,
Illinois; President, Chief Operating Officer and Director, Kemper Corporation;
Chairman, Chief Executive Officer, Chief Investment Officer and Director, Kemper
Financial Services, Inc.; Director, Kemper Financial Companies, Inc. and Kemper
Securities, Inc.; Director, Gillett Holdings, Inc. and LTV Corporation.
JOHN B. TINGLEFF, Trustee (10), 2015 South Lake Shore Drive, Harbor Springs,
Michigan; Retired; formerly President, Tingleff & Associates (management
consulting firm); formerly, Senior Vice President, Continental Illinois National
Bank & Trust Company.
JOHN G. WEITHERS, Trustee (10), 311 Springlake, Hinsdale, Illinois; Retired;
formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock
Exchange; Director, Federal Life Insurance Company; Vice Chairman and Trustee,
DePaul University.
JOHN E. PETERS, Vice President* (31), 120 South LaSalle Street, Chicago,
Illinois; Senior Executive Vice President, Kemper Financial Services, Inc;
President and Director, Kemper Distributors, Inc.
C. BETH COTNER, Vice President* (6), 120 South LaSalle Street, Chicago,
Illinois; Executive Vice President and Director of Domestic Equity Portfolio
Management, Kemper Financial Services, Inc.
TRACY McCORMICK CHESTER, Vice President* (2), 120 South LaSalle Street, Chicago,
Illinois; Senior Vice President and Portfolio Manager, Kemper Financial
Services, Inc.; formerly, Portfolio Manager for Fiduciary Management; prior
thereto, independent consultant managing private accounts.
B-15
<PAGE> 50
DENNIS H. FERRO, Vice President* (3), 120 South LaSalle Street, Chicago,
Illinois; Executive Vice President and Director of International Equity
Investments, Kemper Financial Services, Inc.; prior thereto, President, Managing
Director and Chief Investment Officer of an international investment advisory
firm.
CHARLES F. CUSTER, Vice President and Assistant Secretary* (31), 222 North
LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman & Kammholz
(attorneys), Legal Counsel to the Fund.
JEROME L. DUFFY, Treasurer* (31), 120 South LaSalle Street, Chicago, Illinois;
Senior Vice President, Kemper Financial Services, Inc.
PHILIP J. COLLORA, Vice President and Secretary* (31), 120 South LaSalle Street,
Chicago, Illinois; Attorney, Senior Vice President and Assistant Secretary,
Kemper Financial Services, Inc.
ELIZABETH C. WERTH, Assistant Secretary* (23), 120 South LaSalle Street,
Chicago, Illinois; Vice President and Director of State Registrations, Kemper
Financial Services, Inc.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund, except that Mr. Custer's law firm
receives fees from the Fund as counsel to the Fund. The table below shows
amounts estimated to be paid or accrued to those trustees who are not designated
"interested persons" during the Fund's 1995 fiscal year except that the
information in the last column is for calendar year 1994. The Fund pays trustees
who are not designated above as "interested persons" an annual retainer of
$1,500 plus an attendance fee of $200 per Board meeting and $100 per committee
meeting attended.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BENEFITS KEMPER FUNDS
COMPENSATION ACCRUED AS PART OF PAID TO
NAME OF TRUSTEE FROM FUND FUND EXPENSES TRUSTEES**
- ------------------------------------------------ ------------ ------------------- ------------
<S> <C> <C> <C>
Arthur R. Gottschalk*........................... $2,500 $ 0 $ 65,000
Frederick T. Kelsey*............................ $2,500 $ 0 $ 66,800
John B. Tingleff................................ $2,500 $ 0 $ 63,500
John G. Weithers................................ $2,500 $ 0 $ 63,100
</TABLE>
- ---------------
* Includes deferred fees and interest thereon pursuant to deferred compensation
agreements with the Fund. Deferred amounts accrue interest monthly at a rate
equal to the yield of Kemper Money Market Fund -- Money Market Portfolio.
** Includes compensation for service for calendar year 1994 on the boards of 10
Kemper funds with 21 fund portfolios. Also includes amounts for new funds
estimated as if the fund had existed at the beginning of the year.
As of April 30, 1995, the trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund and KFS owned of record all of the
outstanding shares of the Fund.
SHAREHOLDER RIGHTS
The Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Trust ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval by shareholders is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Trust, a series or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Trust, establishing a series, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); (e) as to whether a court action,
proceeding or claim should or should not be
B-16
<PAGE> 51
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (f) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Trust, or any registration of the
Trust with the Securities and Exchange Commission or any state, or as the
trustees may consider necessary or desirable. The shareholders also would vote
upon changes in fundamental investment objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Trust will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Trust stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Trust could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Trust and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any series or class) by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Trust. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by KFS and KDI as remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
B-17
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Target Equity Fund--
Kemper Retirement Fund Series VI
We have audited the accompanying statement of net assets of Kemper Target Equity
Fund--Kemper Retirement Fund Series VI as of April 17, 1995. This statement of
net assets is the responsibility of the Trust's management. Our responsibility
is to express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper Target Equity
Fund--Kemper Retirement Fund Series VI at April 17, 1995 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 17, 1995
KEMPER TARGET EQUITY FUND--KEMPER RETIREMENT FUND SERIES VI
STATEMENT OF NET ASSETS--APRIL 17, 1995
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $100,000
========
NET ASSETS
Net assets, applicable to 11,111.111 shares of beneficial interest outstanding,
equivalent to $9.00 per share (unlimited number of shares authorized, no par
value).............................................................................. $100,000
========
THE PRICING OF SHARES
Net asset value and redemption price per share ($100,000 / 11,111.111 shares
outstanding)........................................................................ $ 9.00
Maximum offering price per share (net asset value, plus 5.26% of net asset value or
5.00% of offering price)............................................................ $ 9.47
</TABLE>
- ---------------
NOTES:
Kemper Target Equity Fund (the "Trust") was organized as a business trust under
the laws of The Commonwealth of Massachusetts on August 3, 1988; all shares of
beneficial interest of Kemper Retirement Fund Series VI (the "Fund") of the
Trust were issued to Kemper Financial Services, Inc. ("KFS"), the investment
manager for the Fund, on April 17, 1995 for $100,000 cash. The Trust may
establish multiple series; currently seven series have been established. The
Fund has no prior operating history.
The costs of organization of the Fund will be paid by KFS.
B-18
