KEMPER TARGET EQUITY FUND, 497, 1997-11-07

KEMPER TARGET EQUITY FUND
497, 1997-11-07

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TABLE OF CONTENTS
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<TABLE>
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Summary 1
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Summary of Expenses 2
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Financial Highlights 3
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Investment Objectives, Policies and Risk 4
Factors
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Investment Manager and Underwriter 11
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Dividends and Taxes 13
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Net Asset Value 14
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Purchase of Shares 15
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Redemption or Repurchase of Shares 19
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Special Features 21
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Performance 24
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Capital Structure 25
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</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 November 1, 1997, 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.
KEMPER LOGO

KEMPER

RETIREMENT

FUND SERIES VII

PROSPECTUS NOVEMBER 1, 1997

KEMPER RETIREMENT FUND SERIES VII
222 S. Riverside Plaza, Chicago, Illinois 60606, 1-800-621-1048.

The objectives of Kemper Retirement Fund Series VII (the "Fund") are to provide
a guaranteed return of investment on the Maturity Date (May 15, 2008) 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
Zurich Kemper Investments, 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.
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KEMPER RETIREMENT FUND SERIES VII
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048

SUMMARY

INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Retirement Fund Series VII
(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, 2008) 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 Zurich Kemper Investments, 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. Zurich Kemper Investments, Inc. ("ZKI") is
the Fund's investment manager. ZKI is paid an investment management fee at the
annual rate of .50% of average daily net assets of the Fund. Zurich Investment
Management Limited ("ZIML"), an affiliate of ZKI, is the sub-adviser for the
Fund and is paid by ZKI a fee of .35% of the portion of the average daily net
assets of the Fund allocated by ZKI to ZIML for management. Zurich Kemper
Distributors, Inc. ("ZKDI"), a wholly owned subsidiary of ZKI, is the Fund's
principal underwriter and administrator. Administrative services are provided to
shareholders under an administrative services agreement with ZKDI. The Fund pays
an administrative services fee at the annual rate of up to .25% of average daily
net assets of the Fund, which ZKDI pays to financial services firms. See
"Investment Manager and Underwriter."

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<PAGE> 3

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 Individual Retirement Account
is $250 and the minimum subsequent investment is $50. It is anticipated that the
Offering Period will continue until May 15, 1998 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. Shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1% contingent
deferred sales charge if redeemed within one year of purchase and a .50%
contingent deferred sales charge if redeemed during the second year of purchase.
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

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<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.............................................. .60%
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Total Operating Expenses.................................... 1.10%
====
</TABLE>

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(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." The table does not include the $9.00
quarterly small account fee. See "Redemption or Repurchase of Shares."

(2) The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a contingent deferred sales charge
of 1% the first year and .50% the second year. See "Purchase of Shares."

2
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EXAMPLE

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You would pay the following expenses on a $1,000 investment,
assuming 1 YEAR 3 YEARS
(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. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

The table below shows financial information expressed in terms of one share
outstanding throughout the period. The information in the table is covered by
the report of the Fund's independent auditors. The report is contained in the
Trust's Registration Statement and is available from the Fund. The financial
statements contained in the Fund's 1997 Annual Report to Shareholders are
incorporated herein by reference and may be obtained by writing or calling the
Fund. The Fund commenced operations on May 1, 1997 and its initial fiscal year
end was June 30. Subsequently, the Trust changed its fiscal year end to July 31.
The financial highlights for both fiscal periods is presented below.

<TABLE>
<CAPTION>
ONE MONTH MAY 1, 1997
ENDED TO
JULY 31, 1997 JUNE 30, 1997
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<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.23 9.00
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Income from investment operations:
Net investment income .01 .02
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Net realized and unrealized gain .54 .21
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Total from investment operations .55 .23
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Net asset value, end of period $ 9.78 9.23
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TOTAL RETURN (NOT ANNUALIZED): 5.96% 2.56
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RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .95% 1.17
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Net investment income 3.45% 3.16
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SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $4,550 2,043
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Portfolio turnover rate 6% 12
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Average commission rates paid per share on stock
transactions $.0602 .0597
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</TABLE>

NOTE: Total return does not reflect the effect of sales charges. The Fund was
organized as the eighth series of the Trust, which is a business trust under the
laws of Massachusetts. No significant transactions were effected prior to May 1,
1997.

3
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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, 2008) 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 Zurich Kemper Investments, Inc. ("ZKI"), 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, ZKI has entered into a Guaranty Agreement. Under the Guaranty
Agreement, ZKI 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 redemption proceeds and payments under the Guaranty Agreement equal to
the amount of their original investment, including any sales charge.

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<PAGE> 6

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
Offering Period, 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 becomes shorter (i.e.,
as the period to the Maturity Date is shorter), the degree of price

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<PAGE> 7

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 purposes, whether
received in cash or reinvested in additional shares. See "Dividends and

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<PAGE> 8

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 $660 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

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<PAGE> 9

and the New Maturity Date. In that event, it is 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. The
Fund's portfolio turnover rate is listed under "Financial Highlights."

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 Fund may invest in securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933. This rule permits otherwise
restricted securities to be sold to certain institutional buyers, such as the
Fund. Such securities may be illiquid and subject to the Fund's limitation on
illiquid securities. A "Rule 144A" security may be treated as liquid, however,
if so determined pursuant to procedures adopted by the Board of Trustees.
Investing in Rule 144A securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A 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

8
<PAGE> 10

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
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 will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.

The 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

9
<PAGE> 11

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.

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.

DERIVATIVES. In addition to options and financial futures, consistent with its
objective, the Fund may invest in a broad array of financial instruments and
securities in which the value of the instrument or security is "derived" from
the performance of an underlying asset or a "benchmark" such as a security
index, an interest rate or a currency ("derivatives"). Derivatives are most
often used to manage investment risk, to increase or decrease exposure to an
asset class or benchmark (as a hedge or to enhance return), or to create an
investment position indirectly (often because it is more efficient or less
costly than direct investment). The types of derivatives used by the Fund and
the techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.

RISK FACTORS. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures and other derivatives transactions. See "Investment Policies and
Techniques" in the Statement of Additional Information. The principal risks are:
(a) possible imperfect correlation between movements in the prices of options,
futures or other derivatives contracts and movements in the prices of the
securities or currencies hedged, used for cover or that the derivatives intended
to replicate; (b) lack of assurance that a liquid secondary market will exist
for any particular option, futures or other derivatives contract at any
particular time; (c) the need for additional skills and techniques beyond those
required for normal portfolio management; (d) losses on futures contracts
resulting from market movements not anticipated by the investment manager; (e)
the possible need to defer closing out certain options, futures or other
derivatives contracts in order to continue to qualify for beneficial tax
treatment afforded "regulated investment companies" under the Internal Revenue
Code; and (f) the possible non-performance of the counter-party to the
derivatives contract.

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 other liquid 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,

10
<PAGE> 12

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. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. ZKI is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-nine years. ZKI and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, Zurich Money Market Funds, affiliated insurance companies and
other corporate, pension, profit-sharing and individual accounts representing
approximately $85 billion under management. ZKI acts as investment manager for
32 open-end and seven closed-end investment companies, with 86 separate
investment portfolios, representing more than 2.5 million shareholder accounts.
ZKI is an indirect subsidiary of Zurich Insurance Company ("Zurich"), a leading
internationally recognized provider of insurance and financial services in
property/casualty and life insurance, reinsurance and structured financial
solutions as well as asset management.

Zurich has entered into a definitive agreement with Scudder, Stevens & Clark,
Inc. ("Scudder") pursuant to which Zurich will acquire approximately 70% of
Scudder. Upon completion of the transaction, Scudder will change its name to
Scudder Kemper Investments, Inc. ("SKI"), and ZKI will be operated either as a
subsidiary of SKI or as part of SKI. Consummation of the transaction is subject
to a number of contingencies. Because the transaction would constitute an
assignment of the Fund's investment management agreement with ZKI under the
Investment Company Act of 1940, ZKI is seeking approval of a new agreement. The
Fund's board has approved a new agreement subject to shareholder approval. If
the contingencies are timely met, the transaction is expected to close in the
fourth quarter of 1997. Zurich will own 69.5% of SKI and senior employees of SKI
will hold the remaining 30.5%. SKI will be headquartered in New York City and
the chief executive officer of SKI will be Edmond D. Villani, Scudder's
president and chief executive officer. Mr. Villani will also join Zurich's
Corporate Executive Board. A transition team comprised of representatives from
ZKI, Zurich, and Scudder has been formed to make recommendations regarding
combining the operations of Scudder and ZKI.

Responsibility for overall management of the Fund rests with the Board of
Trustees and officers of the Trust. Professional investment supervision is
provided by ZKI. The investment management agreement provides that ZKI shall act
as the Fund's investment adviser, manage its investments and provide it with
various services and facilities. Zurich Investment Management Limited ("ZIML"),
1 Fleet Place, London, U.K. EC4M 7RQ, an affiliate of ZKI, is the sub-adviser
for the Fund. ZIML is an indirect subsidiary of Zurich Insurance Company and has
served as sub-adviser for mutual funds since December, 1996 and investment
adviser for certain institutional accounts since August, 1988. Under the terms
of the sub-advisory agreement between ZIML and ZKI, ZIML renders investment
advisory and management services with regard to such portion of the Fund's
portfolio as may be allocated to ZIML by ZKI from time to time for management of
foreign securities, including foreign currency transactions and related
investments. ZKI pays ZIML for its services a sub-advisory fee, payable monthly
at the

11
<PAGE> 13

annual rate of .35% of the portion of the average daily net assets of the Fund
allocated by ZKI to ZIML for management.

Tracy McCormick Chester is the portfolio manager of the Fund. She has served in
this capacity since the Fund commenced operations in May 1997. Ms. McCormick
Chester joined ZKI in September 1994. She is a vice president of the Trust and
senior vice president of ZKI. Prior to coming to ZKI, 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.

The Fund pays ZKI an investment management fee, payable monthly, at the annual
rate of .50% 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 ZKI), 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, Zurich Kemper
Distributors, Inc. ("ZKDI"), a wholly owned subsidiary of ZKI, is the principal
underwriter of the Fund's shares and acts as agent of the Fund in the sale of
its shares. ZKDI 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 ZKDI, 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," ZKDI 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. ZKDI also provides information and administrative services for
Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). ZKDI enters into related arrangements with various
broker-dealer firms and other service or administrative firms ("firms") that
provide services and facilities for their customers or clients who are investors
in the Fund. Such administrative services and assistance may include, but are
not limited to, establishing and maintaining accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Fund and its special features, and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. ZKDI bears all its expenses of providing services pursuant to the
administrative agreement, including the payment of any service fees. For
services under the administrative agreement, the Fund pays ZKDI a fee, payable
monthly, at the annual rate of up to .25% of average daily net assets of the
Fund. ZKDI then pays each firm a service fee at an annual rate of up to .25% of
net assets of those accounts in the Fund maintained and serviced by the firm.
Firms to which service fees may be paid include affiliates of ZKDI. 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
ZKDI or the Fund. The fees are calculated monthly and paid quarterly.

ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to ZKDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI 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 a firm provides administrative services. In addition, ZKDI
may, from time to time, from its own resources pay certain firms additional
amounts for ongoing administration services and assistance provided to their
customers and clients who are shareholders of the Fund.

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<PAGE> 14

225 Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody
of all securities and cash of the Fund maintained in the United States. The
Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245, as
custodian, has custody of all securities and cash of 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, Zurich Kemper Service Company, an affiliate
of ZKI, 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. ZKI and ZIML place all orders for purchases and sales of
the Fund's securities. Subject to seeking best execution of orders, ZKI and ZIML
may consider sales of shares of the Fund and other funds managed by ZKI or its
affiliates as a factor in selecting broker-dealers. See "Portfolio Transactions"
in the Statement of Additional Information.

DIVIDENDS AND TAXES

DIVIDENDS. The 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. The
Fund will reinvest dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically reinvested in shares of
the Fund unless the shareholder requests that such policy not be applied to the
shareholder's account. 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 continue 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

13
<PAGE> 15

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.

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 transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.

When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.

NET ASSET VALUE

The net asset value per share 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

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<PAGE> 16

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 determinations 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 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
As a Percentage Dealers as a
As a Percentage of Net Asset Percentage of
Amount of Purchase of Offering Price 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 ZKDI as discussed below.

Shares will only be offered to the public during the Offering Period, which is
expected to end on May 15, 1998. 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
ZKDI. 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 and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).

The Fund receives the entire net asset value of all shares sold. ZKDI, 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, ZKDI may

15
<PAGE> 17

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 ZKDI 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.

ZKDI may from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Zurich
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by ZKDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.

In addition to the discounts or commissions described above, ZKDI will, from
time to time, pay or allow additional discounts 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
ZKDI.

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 neither ZKI nor an affiliate 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. ZKDI may in its discretion compensate firms for
sales of shares under this privilege at a commission rate of .50% of the
purchase price of the Fund shares purchased. 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 or a participant-directed qualified
retirement plan described in Code Section 403(b)(7) which is not sponsored by a
K-12 school district, provided in each case that such plan has not less than 200
eligible employees (the "Large Order NAV Purchase Privilege").

A contingent deferred sales charge may be imposed upon redemption of shares of
the Fund that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon

16
<PAGE> 18

redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457 or a participant-directed
qualified uretirement plan described in Code Section 403(b)(7) which is not
sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under the Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares by a shareholder whose dealer of
record at the time of investment notifies ZKDI that the dealer waives the
discretionary commission applicable to such Large Order NAV Purchase.

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.

ZKDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of shares of the Fund at net asset
value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through the Shareholder Service Agent. For purposes of determining the
appropriate commission percentage to be applied to a particular sale, ZKDI 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.

Shares of the Fund may be purchased at net asset value by persons who purchase
such shares through bank trust departments that process such trades through an
automated, integrated mutual fund clearing program provided by a third party
clearing firm.

Shares of the Fund may be purchased at net asset value in any amount by certain
professionals who assist in the promotion of Kemper Funds pursuant to personal
services contracts with ZKDI, for themselves or members of their families. ZKDI
in its discretion may compensate financial services firms for sales of shares
under this privilege at a commission rate of .50% of the amount of shares
purchased.

Shares of the Fund may be purchased at net asset value by persons who purchase
shares of the Fund through ZKDI as part of an automated billing and wage
deduction program administered by Rewards Plus of America for the benefit of
employees of participating employer groups.

Shares may be sold at net asset value in any amount to: (a) 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; (b) registered
representatives and employees of broker-dealers having selling group agreements
with ZKDI and officers, directors and employees of service agents of the Fund,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper Value Fund, Inc. ("KVF") on September 8, 1995, and have
continuously owned shares of KVF (or a

17
<PAGE> 19

Kemper Fund acquired by exchange of KVF shares) since that date, for themselves
or members of their families; and (d) any trust, 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 ZKDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund shares at net asset value hereunder. Shares may
be sold at net asset value in any amount to unit investment trusts sponsored by
Ranson & Associates, Inc. In addition, unitholders of unit investment trusts
sponsored by Ranson & Associates, Inc. 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 ZKDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program under
which such clients pay a fee to the investment adviser or other firm for
portfolio management and other services. Such shares are sold for investment
purposes and on the condition that they will not be resold except through
redemption or repurchase by the 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.

Shares of the Fund or any other Kemper Mutual Fund listed under "Special
Features Combined Purchases" may be purchased at net asset value in any amount
by members of the plaintiff class in the proceeding known as HOWARD AND AUDREY
TABANKIN, ET AL. V. KEMPER SHORT-TERM GLOBAL INCOME FUND, ET AL., Case No. 93 C
5231 (N.D. IL). This privilege is generally non-transferrable and continues for
the lifetime of individual class members and for a ten year period for
non-individual class members. To make a purchase at net asset value under this
privilege, the investor must, at the time of purchase, submit a written request
that the purchase be processed at net asset value pursuant to this privilege
specifically identifying the purchaser as a member of the "Tabankin Class."
Shares purchased under this privilege will be maintained in a separate account
that includes only shares purchased under this privilege. For more details
concerning this privilege, class members should refer to the Notice of (1)
Proposed Settlement with Defendants; and (2) Hearing to Determine Fairness of
Proposed Settlement, dated August 31, 1995, issued in connection with the
aforementioned court proceeding. For sales of Fund shares at net asset value
pursuant to this privilege, ZKDI may at its discretion pay investment dealers
and other financial services firms a concession, payable quarterly, at an annual
rate of up to .25% of net assets attributable to such shares maintained and
serviced by the firm. A firm becomes eligible for the concession based upon
assets in accounts attributable to shares purchased under this privilege in the
month after the month of purchase and the concession continues until terminated
by ZKDI. The privilege of purchasing shares of a Fund at net asset value under
this privilege is not available if another net asset value purchase privilege
also applies (including the purchase of Class A shares of the Cash Reserves
Fund).

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

18
<PAGE> 20

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 ZKDI, 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.

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 ZKDI 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
ZKDI prior to the close of its business day will be confirmed at a price based
on the net asset value effective on that day. 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 Zurich Kemper Service Company, 811
Main Street, Kansas City, Missouri 64105-2005 or to the firm from which they
received this prospectus.

REDEMPTION OR REPURCHASE OF SHARES

GENERAL. Any shareholder may require 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 (i.e., purchases by
check, EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of
redemption proceeds until it has

19
<PAGE> 21

determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by the Fund of the purchase
amount. The redemption within two years of shares purchased at net asset value
under the Large Order NAV Purchase Privilege may be subject to a contingent
deferred sales charge (see "Purchase of Shares").

Because of the high cost of maintaining small accounts, effective January 1998,
the Fund may assess a quarterly fee of $9 on any account with a balance below
$1,000 for the quarter. The fee will not apply to accounts enrolled in an
automatic investment program, individual retirement accounts, or employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent.

Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agent
reasonably believes, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.

TELEPHONE REDEMPTIONS. If the proceeds of the redemption 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, through EXPRESS-Transfer or Bank
Direct Deposit may not be redeemed under this privilege of redeeming shares by
telephone request until such shares have been owned for at least 10 days. This
privilege of redeeming shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificated form
and may not be used if the shareholder's account has had an address change
within 30 days of the redemption request. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the telephone redemption privilege, although investors can still redeem by mail.
The 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 ZKDI, which the Fund has authorized to act as its agent. There
is no charge by ZKDI with respect to repurchases; however, dealers or other
firms may charge customary commissions for their services. Dealers and other
financial services firms are obligated to transmit orders promptly. The
repurchase price will be the net asset value next determined after receipt of a
request by ZKDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by ZKDI prior to the close of ZKDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.

20
<PAGE> 22

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 ZKI 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, through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this 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 wire transfer redemption privilege. The
Fund reserves the right to terminate or modify this privilege at any time.

REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares of the Fund or
Class A shares of any other Kemper Mutual Fund listed under "Special
Features--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in Class A 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 Class A
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 in the same Fund 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 Series, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period), Kemper

21
<PAGE> 23

Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Fund,
Inc., Kemper Value+Growth Fund, Kemper Horizon Fund, Kemper Quantitative Equity
Fund, Kemper Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth
Fund ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered "Kemper Mutual Funds" for purposes hereof. For purposes
of the Combined Purchases feature described above, as well as for the Letter of
Intent and Cumulative Discount features described below, employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent may include (a) Money Market Funds as
"Kemper Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund and
(c) the value of any other plan investment, such as guaranteed investment
contracts and employer stock, maintained on such subaccount record keeping
system.

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 ZKDI. 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 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 the
Shareholder Service Agent may have special provisions regarding payment of any
increased sales charge resulting from a failure to complete the intended
purchase under the Letter. A shareholder may include the value (at the maximum
offering price) of all shares of such Kemper Mutual Funds held of record as of
the initial purchase date under the Letter as an "accumulation credit" toward
the completion of the Letter, but no price adjustment will be made on such
shares.

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 ZKDI
whenever a quantity discount or reduced sales charge is applicable to a
purchase. Upon such notification, the investor will receive the lowest
applicable sales charge. Quantity discounts described above may be modified or
terminated at any time.

EXCHANGE PRIVILEGE. 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 and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Shares of a Kemper
Mutual Fund with a value in excess of $1,000,000 (except Kemper Cash Reserves
Fund) acquired by exchange from another Kemper Mutual Fund, or from a Money
Market Fund, may not be exchanged thereafter until they have been owned for 15
days (the "15 Day Hold Policy"). For purposes of determining whether the 15 Day
Hold Policy applies to a particular exchange, the value of the shares to be
exchanged shall be computed by aggregating the value of shares being exchanged
for all accounts under common control, direction, or advice, including without
limitation, accounts administered by a financial services firm

22
<PAGE> 24

offering market timing, asset allocation or similar services. 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, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with ZKDI. 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 the portfolios of Investors Municipal Cash Fund are
available for sale only in certain states.

The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper Fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or ZKDI. Exchanges may be accomplished by a written
request to Zurich Kemper Service Company, 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 $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege of redeeming shares by EXPRESS-Transfer until such shares have been
owned for at least 10 days. By enrolling in EXPRESS-Transfer, the shareholder
authorizes the Shareholder Service Agent to rely upon telephone instructions
from ANY PERSON to transfer the specified amounts between the shareholder's Fund
account and the predesignated bank, savings and loan or credit union account,
subject to the limitations on liability under "Redemption or Repurchase of
Shares--General." Once enrolled in EXPRESS-Transfer, a shareholder can initiate
a transaction by calling Kemper Shareholder Services toll free at 1-800-621-1048
Monday through Friday, 8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may
terminate this privilege by sending written notice to Zurich 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 up to $50,000 to
be paid to the owner or a designated payee monthly, quarterly, semiannually or
annually. The $5,000 minimum account size is not applicable to Individual
Retirement Accounts. The minimum periodic payment is $100. Shares are redeemed
so that the payee will receive payment approximately the first of the month. 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.

23
<PAGE> 25

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. The Shareholder Service Agent provides
retirement plan services and documents and ZKDI can establish investor accounts
in any of the following types of retirement plans:

- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") IRA
accounts and Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.

- - 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.

- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.

Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan. In view of
the limited Offering Period of the Fund (see "Purchase of Shares"), the Fund may
not be appropriate for periodic contribution plans.

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 for performance information purposes).
Average annual total return figures represent the average annual percentage
change over the period in question. Total return figures represent the aggregate
percentage or dollar value change over the period in question.

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. 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.

Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED

24
<PAGE> 26

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 more series, all having no par value. The Trust has established eight
series of shares: Kemper Retirement Fund Series I, Series II, Series III, Series
IV, Series V, Series VI and Kemper Worldwide 2004 Fund, which are no longer
offered, and Kemper Retirement Fund Series VII, which is the 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 compliance with the Securities and Exchange
Commission regulations permitting the creation of separate classes of shares.
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.

25
<PAGE> 27
November 1, 1997

Prospectus

KEMPER TARGET EQUITY FUND

Kemper Retirement Fund Series VII

Investment Manager
Zurich Kemper Investments, Inc.

Principal Underwriter
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048

[RECYCLE LOGO] Printed on recycled paper.
(ZKDI) 710168 (11/97)

<TABLE>
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[KEMPER FUNDS LOGO] [KEMPER FUND LOGO]
Long-term investing in a short-term world(SM) Long-term investing in a short-term world

</TABLE>

<PAGE> 28

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 1, 1997

KEMPER RETIREMENT FUND SERIES VII
222 SOUTH RIVERSIDE PLAZA STREET, CHICAGO, ILLINOIS 60606
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 VII (the
"Fund") dated November 1, 1997. The prospectus may be obtained without charge
from the Fund. The Fund is a series of Kemper Target Equity Fund.

------------------

TABLE OF CONTENTS

<TABLE>
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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-14

Purchase and Redemption of Shares........................... B-15

Officers and Trustees....................................... B-15

Shareholder Rights.......................................... B-17
</TABLE>

The financial statements appearing in the Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report accompanies
this document.

KRF-13 11/97 [LOGO] printed on recycled paper

<PAGE> 29

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 VII (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) 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.

(9) 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.

(10) 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.

(11) Issue senior securities as defined in the Investment Company Act of 1940.

B-1
<PAGE> 30

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number (4) in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval.

The 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 and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 10% of total assets.

(vi) Invest more than 10% of its total assets in securities of real estate
investment trusts.

(vii) 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.

(viii) 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.

(ix) Invest for the purpose of exercising control or management of another
issuer.

(x) 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.

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, options and other derivatives
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.

B-2
<PAGE> 31

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.

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.

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

B-3
<PAGE> 32

exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the underlying securities or other
assets. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. 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 that is used as a bench
mark. The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. 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

B-4
<PAGE> 33

to purchase put options allows the Fund to protect capital gains in an
appreciated security it owns, without being required to sell that security.

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 applicable
regulation, when purchasing a futures contract, or entering into a forward
foreign currency exchange purchase, the Fund will maintain eligible securities
in a segregated account. 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 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.

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<PAGE> 34

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 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 countries considered by the Fund's investment manager to be 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.

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<PAGE> 35

In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio 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. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.

In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed 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

B-7
<PAGE> 36

may become subject to market competition from which they were previously
protected. Some of these enterprises may not be able to effectively operate in a
competitive market and may suffer losses or experience bankruptcy due to such
competition.

DEPOSITORY RECEIPTS. The Fund may invest in securities of foreign issuers in the
form of American Depositary Receipts ("ADRs"). For many foreign securities,
there are U.S. Dollar-denominated 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 securities of foreign issuers in the form of European Depository
Receipts ("EDRs") and Global Depositary Receipts ("GDRs"), which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European and other foreign securities markets. EDRs and
GDRs 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 the Fund's investment manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. Dollar, it may
enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's 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

B-8
<PAGE> 37

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.

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 eligible securities to the extent required by applicable
regulations in connection with forward foreign currency exchange contracts
entered into for the purchase of a foreign currency. The Fund generally does not
enter into a forward contract with a term longer than one year.

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 sold short or securities convertible
into or exchangeable for, without payment of any further consideration,
securities of the same issue as, and at least equal in amount to, the securities
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 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

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<PAGE> 38

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 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.

The mark-to-market rules of the Code may require the Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts and futures contracts on
foreign currency are mark-to-market, the gain or loss is generally ordinary
under Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that the Fund had unrealized gains in offsetting positions at year end.

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" (other than shares of
Kemper Cash Reserves Fund not acquired by exchange from another Kemper Mutual
Fund) may reinvest the amount redeemed at net asset value at the time of the
reinvestment in shares of 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 reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of Fund shares and reinvests in the same Fund's
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.

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<PAGE> 39

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. Average annual total return may
also be calculated without deducting the maximum sales charge.

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 and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("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. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the Fund's investment manager. ZKI is wholly
owned by ZKI Holding Corp. ZKI Holding Corp. is a more than 90% owned subsidiary
of Zurich Holding Company of America, Inc., which is a wholly owned subsidiary
of Zurich Insurance Company, a leading internationally recognized provider of
insurance and financial services in property/casualty and life insurance,
reinsurance and structured financial solutions as well as asset management.
Pursuant to an investment management agreement, ZKI 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 affiliated with ZKI), 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

B-11
<PAGE> 40

various states. Kemper Retirement Fund Series I, Series II, Series III, Series
IV, Series V and Series VI (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 ZKI an investment management fee, payable monthly, at an annual
rate of .50% of average daily net assets of the Fund. ZKI has agreed to
reimburse the Fund to the extent required by applicable state expense
limitations should all operating expenses of the Fund, including the investment
management fees of ZKI but excluding taxes, interest, distribution fees,
extraordinary expenses, brokerage commissions or transaction costs and any other
properly excludable expenses, exceed the applicable state expense limitations.
Currently, there are no state expense limitations in effect.

The investment management agreement provides that ZKI 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
ZKI 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 ZKI 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.

FUND SUB-ADVISER. Zurich Investment Management Limited ("ZIML"), 1 Fleet Place,
London, U.K. EC4M 7R0, an affiliate of ZKI, is the sub-adviser for the foreign
securities portion of the Fund. ZIML acts as sub-adviser pursuant to the terms
of a sub-advisory agreement between it and ZKI.

Under the terms of the sub-advisory agreement for the Fund, ZIML renders
investment advisory and management services with regard to that portion of the
Fund's portfolio as may be allocated to ZIML by ZKI from time to time for
management of foreign securities, including foreign currency transactions and
related investments. ZIML may, under the terms of the sub-advisory agreement,
render similar services to others including other investment companies. For its
services, ZIML will receive from ZKI a monthly fee at the annual rate of .35% of
the portion of the average daily net assets of the Fund allocated by ZKI to ZIML
for management. ZIML permits any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
Kemper Retirement Fund Series I, Series II, Series III, Series IV, Series V and
Series VI (which are no longer being offered) and the Fund are subject to the
Sub-Advisory Agreement.

The sub-advisory agreement provides that ZIML will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the sub-advisory agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZIML in the performance of its duties or from reckless disregard by ZIML of its
obligations and duties under the sub-advisory agreement.

The sub-advisory agreement continues in effect from year to year so long as its
continuation is approved at least annually (a) by a majority of the trustees who
are not parties to such agreement or interested persons of any such party except
in their capacity as trustees of the Fund and (b) by the shareholders or the
Board of Trustees. The sub-advisory agreement may be terminated at any time for
the Fund upon 60 days notice by ZKI, ZIML or the Board of Trustees, or by a
majority vote of the outstanding shares of the Fund, and will terminate
automatically upon assignment or upon the termination of the Fund's investment
management agreement. If additional Funds

B-12
<PAGE> 41

become subject to the sub-advisory agreement, the provisions concerning
continuation, amendment and termination shall be on a Fund-by-Fund basis.
Additional Funds may be subject to a different agreement. Kemper Worldwide 2004
Fund, a series of the Trust, is subject to a different sub-advisory agreement.

PRINCIPAL UNDERWRITER. Zurich Kemper Distributors, Inc. ("ZKDI"), a wholly owned
subsidiary of ZKI, 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 ZKDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. ZKDI also pays for supplementary sales literature and
advertising costs. 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 ZKDI.
ZKDI bears all its expenses of providing services pursuant to the administrative
agreement between ZKDI and the Trust, including the payment of any service fees.
The Trust pays ZKDI an administrative services fee, payable monthly, at the
annual rate of up to .25% of average daily net assets of the Trust.

ZKDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors in the 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 accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Trust, and
such other administrative services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. ZKDI pays such firms a
service fee, payable quarterly, at an annual rate of up to .25% 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 ZKDI.

ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Trust. Currently, the
administrative services fee payable to ZKDI is based only upon Trust assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI 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 a firm of record provides administrative services. The
Board of Trustees of the Trust, in its discretion, may approve basing the fee to
ZKDI on all Trust assets in the future.

Certain trustees or officers of the Trust are also directors or officers of ZKI,
ZIML or ZKDI as indicated under "Officers and Trustees."

CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Trust maintained in the United States. The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of the 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, Zurich Kemper Service Company ("ZKSVC"), an affiliate of ZKI, 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 ZKSVC, annual account fees of $6 per account

B-13
<PAGE> 42

plus account set up, transaction and maintenance 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

ZKI and its affiliates furnish investment management services for the Kemper
Funds, Zurich Money Market Funds and other clients including affiliated
insurance companies. ZIML is the sub-adviser for the Fund and other Kemper
Funds. ZKI and its affiliates share some common research and trading facilities.
At times investment decisions may be made to purchase or sell the same
investment securities for the Fund and for one or more of the other clients
advised by ZKI or its affiliates. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security through the
same trading facility, the transactions are allocated as to amount and price in
a manner considered equitable to each.

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.

ZKI and ZIML, 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. ZKI and ZIML may be permitted to pay higher brokerage commissions for
research services as described below. Consistent with this policy, orders for
portfolio transactions are placed with broker-dealer firms giving consideration
to the quality, quantity and nature of each firm's professional services, which
include execution, financial responsibility, responsiveness, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and ZKI and its affiliates. Subject to the
policy of seeking best execution of an order, brokerage is allocated on the
basis of all services provided. Any research benefits derived are available for
all clients of ZKI and its affiliates. In selecting among firms believed to meet
the criteria for handling a particular transaction, ZKI and ZIML may give
consideration to those firms that have sold or are selling shares of the Fund
and other funds managed by ZKI or its affiliates, as well as to those firms that
provide market, statistical and other research information to the Fund and ZKI
and its affiliates, although ZKI and ZIML are not authorized to pay higher
commissions to firms that provide such services, except as described below.

ZKI and ZIML may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include, among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation equipment and software; and research or
analytical computer software and services. ZKI and ZIML may attempt to direct
sufficient commissions and in the case of transactions for certain types of
clients, dealer selling concessions on new issues of securities, to ensure the
continued receipt of such research products and services. Where products or
services have a "mixed use," a good faith effort is made to make a reasonable
allocation of the cost of the products or services in accordance with the
anticipated research and non-research uses and the cost attributable to
non-research use is paid by ZKI or one of its affiliates in cash. Subject to
Section 28(e) and procedures adopted by the Board of Trustees of the Trust, the
Fund could pay a firm that provides research services commissions for effecting
a securities transaction for the Fund in excess of the amount other firms would
have charged for the transaction if ZKI or ZIML determines in good faith that
the greater commission is reasonable in relation to the value of the brokerage
and research services provided by the executing firm viewed in terms either of a
particular transaction or ZKI's or ZIML's overall responsibilities to the Fund
and other clients. Not all of such research services may be

B-14
<PAGE> 43

useful or of value in advising a particular Fund. Research benefits will be
available for all clients of ZKI and its affiliates. The investment management
fee paid by the Fund to ZKI is not reduced because these research services are
received.

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.

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 anticipated 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 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 birthdates, their principal
occupations and their affiliations, if any, with ZKI, the Fund's investment
adviser, ZIML, the sub-adviser of the Fund, and ZKDI, the Fund's principal

B-15
<PAGE> 44

underwriter, are as follows (The number following each person's title is the
number of investment companies managed by ZKI or an affiliate for which he or
she holds similar positions):

JAMES E. AKINS (10/15/26), Director (13), 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia.

ARTHUR R. GOTTSCHALK (2/13/25), Trustee (13), 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelly Corp.

FREDERICK T. KELSEY (4/25/27), Trustee (13), 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Benchmark Funds; Trustee of the Pilot
Funds (through 1997).

FRED B. RENWICK (2/1/30), Director (13), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Investment Program, Inc.; Director, the Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church of America.

STEPHEN B. TIMBERS (8/8/44), President and Trustee* (39), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, ZKDI, Zurich Kemper Value Advisors, Inc.
and LTV Corporation; formerly, President and Chief Operating Officer of Kemper
Corporation.

JOHN B. TINGLEFF (5/4/35), Trustee (13), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.

JOHN G. WEITHERS (8/8/33), Trustee (13), 311 Springlake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering.

CHARLES R. MANZONI, JR. (1/23/47), Vice President* (39), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI; Secretary, ZKI Holding Corp., Secretary, ZKI Agency, Inc.;
formerly, Partner, Gardner Carton & Douglas (attorneys).

STEVEN H. REYNOLDS (9/11/43), Vice President* (12), 222 South Riverside Plaza,
Chicago, Illinois, Executive Vice President and Chief Investment
Officer--Equities, ZKI.

TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, ZKI; formerly, Senior Vice
President and Portfolio Manager for Fiduciary Management; prior thereto, managed
private accounts.

JOHN E. NEAL (3/9/50), Vice President* (39), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, Zurich
Kemper Value Advisors, Inc. and ZKDI.

JEROME L. DUFFY (6/29/36), Treasurer* (39), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.

PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (39), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.

B-16
<PAGE> 45

ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (32), 222 South Riverside
Plaza, Chicago, Illinois; Vice President and Director of State Registrations,
ZKI and ZKDI.

* 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 Trust. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Trust's 1997 fiscal year, except that the information in the last column is for
calendar year 1996.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE KEMPER FUNDS
COMPENSATION PAID TO
NAME OF TRUSTEE FROM TRUST TRUSTEES(2)
--------------- ------------ ------------
<S> <C> <C>
James E. Akins.............................................. $17,300 $ 94,300
Arthur R. Gottschalk(1)..................................... $17,600 $102,700
Frederick T. Kelsey......................................... $17,300 $106,800
Fred B. Renwick............................................. $17,300 $ 94,300
John B. Tingleff............................................ $17,300 $ 94,300
John G. Weithers............................................ $17,300 $ 94,300
</TABLE>

- ---------------

(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Trust. Deferred amounts accrue interest
monthly at a rate equal to the yield of Zurich Money Funds--Zurich Money
Market Fund. The total deferred amount and interest accrued through July 31,
1997 for the Trust is $53,300 for Mr. Gottschalk.

(2) Includes compensation for service on the boards of 13 Kemper funds with 46
fund portfolios.

As of October 17, 1997, the trustees and officers as a group owned less than 1%
of the outstanding shares of any series of the Trust and no person owned of
record 5% or more of the shares of Series VII except as noted below:

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
- ---------------- ----------
<S> <C>
Donaldson Lufkin & Jenrette................................. 5.52%
P.O. Box 2052
Jersey City, NJ
National Financial Svc's Corp. ............................. 8.23%
One World Financial Center
200 Liberty Street
New York, NY
BHC Securities, Inc. ....................................... 17.11%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
</TABLE>

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

B-17
<PAGE> 46

("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
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 ZKI and ZKDI 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-18