<PAGE> 1
<TABLE>
<S> <C>
TABLE OF CONTENTS
- -----------------------------------------------
Summary 1
- -----------------------------------------------
Summary of Expenses 2
- -----------------------------------------------
Financial Highlights 5
- -----------------------------------------------
Investment Objectives, Policies and Risk
Factors 10
- -----------------------------------------------
Investment Manager and Underwriter 21
- -----------------------------------------------
Dividends and Taxes 26
- -----------------------------------------------
Net Asset Value 27
- -----------------------------------------------
Purchase of Shares 28
- -----------------------------------------------
Redemption or Repurchase of Shares 33
- -----------------------------------------------
Special Features 36
- -----------------------------------------------
Performance 40
- -----------------------------------------------
Capital Structure 41
- -----------------------------------------------
</TABLE>
This combined prospectus of the Kemper Equity Funds contains information about
each of the Funds that you should know before investing and should be retained
for future reference. For Funds other than Kemper Value+Growth Fund, this is a
revision of a prospectus dated February 1, 1995. A Statement of Additional
Information dated October 16, 1995, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is available
upon request without charge from the Funds at the address or telephone number on
this cover or the firm from which this prospectus was obtained. Kemper
Value+Growth Fund is also known as Kemper Value Plus Growth Fund.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
[KEMPER LOGO]
KEMPER
EQUITY
FUNDS
PROSPECTUS OCTOBER 16, 1995
KEMPER EQUITY FUNDS
120 South LaSalle Street, Chicago, Illinois 60603
1-800-621-1048
This prospectus describes a choice of six equity and balanced mutual funds
managed by Kemper Financial Services, Inc.
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
KEMPER EQUITY FUNDS
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The six open-end, diversified management investment
companies (the "Funds") covered in this combined prospectus are as follows:
KEMPER BLUE CHIP FUND (the "Blue Chip Fund") seeks growth of capital and of
income.
KEMPER GROWTH FUND (the "Growth Fund") seeks growth of capital through
professional management and diversification of investment securities having
potential for capital appreciation.
KEMPER SMALL CAPITALIZATION EQUITY FUND (the "Small Cap Fund") seeks maximum
appreciation of investors' capital.
KEMPER TECHNOLOGY FUND (the "Technology Fund") seeks growth of capital.
KEMPER TOTAL RETURN FUND (the "Total Return Fund") seeks to obtain the highest
total return, a combination of income and capital appreciation, consistent with
reasonable risk.
KEMPER VALUE+GROWTH FUND (the "Value+Growth Fund") seeks growth of capital
through professional management of a portfolio of growth and value stocks.
The Funds may purchase put and call options, engage in financial futures
transactions, invest in foreign securities, engage in related foreign currency
transactions and lend portfolio securities. The Technology Fund may also write
(sell) put and call options. The Funds may invest up to 25% of total assets in
foreign securities. See "Investment Objectives, Policies and Risk Factors."
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate. Investment by the Small Cap Fund
primarily in smaller companies and the emphasis of the Technology Fund on
smaller emerging growth technology companies involve greater risk than
investment in larger, more established companies. Foreign investments by the
Funds involve risk and opportunity considerations not typically associated with
investing in U.S. companies. The U.S. Dollar value of a foreign security tends
to decrease when the value of the U.S. Dollar rises against the foreign currency
in which the security is denominated and tends to increase when the value of the
U.S. Dollar falls against such currency. Thus, the U.S. Dollar value of foreign
securities in a Fund's portfolio, and the Fund's net asset value, may change in
response to changes in currency exchange rates even though the value of the
foreign securities in local currency terms may not have changed. While a Fund's
investments in foreign securities will principally be in developed countries,
the Fund may invest a portion of its assets in developing or "emerging" markets,
which involve exposure to economic structures that are generally less diverse
and mature than in the United States, and to political systems that may be less
stable. A portion of the assets of the Total Return Fund may be invested in
lower rated or unrated high yield bonds which entail greater risk of loss of
principal and interest than higher rated fixed income securities. There are
special risks associated with options, financial futures and foreign currency
transactions and there is no assurance that use of those investment techniques
will be successful. See "Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares............ Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price. Reduced sales
charges apply to purchases of $50,000 or more. The
redemption within one year of Class A shares
purchased at net asset value under the Large Order
NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge.
Class B Shares............ Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
1
<PAGE> 3
redemptions made within six years of purchase. Class
B shares automatically convert into Class A shares
(which have lower ongoing expenses) six years after
purchase.
Class C Shares........... Offered at net asset value without an initial or
contingent deferred sales charge, but subject to a
Rule 12b-1 distribution fee. Class C shares do not
convert into another class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and investments thereafter
must be at least $100. Shares are redeemable at net asset value, which may be
more or less than original cost, subject, in the case of Class A shares
purchased under the Large Order NAV Purchase Privilege and for Class B shares,
to any applicable contingent deferred sales charge. See "Purchase of Shares" and
"Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Kemper Financial Services, Inc. ("KFS")
serves as investment manager for each Fund. KFS is paid an investment management
fee by each Fund based upon average daily net assets of that Fund at an
effective annual rate that differs for each Fund. Dreman Value Advisors, Inc.
("DVA"), a wholly owned subsidiary of KFS, is the sub-adviser for the
Value+Growth Fund and is paid a fee of .25% of average daily net assets of that
Fund by KFS. Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of
KFS, is principal underwriter and administrator for each Fund. For Class B
shares and Class C shares, KDI receives a Rule 12b-1 distribution fee of .75% of
average daily net assets. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under administrative services agreements with KDI.
Each Fund pays an administrative services fee at the annual rate of up to .25 of
1% of average daily net assets of each class of the Fund, which KDI pays to
financial services firms. See "Investment Manager and Underwriter."
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Growth, Small Cap, Technology and Value+Growth Funds;
semi-annually for the Blue Chip Fund; and quarterly for the Total Return Fund.
Each Fund distributes any net realized short-term and long-term capital gains at
least annually. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of that Fund, without a sales charge, unless the
shareholder makes a different election. See "Dividends and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may make each Fund liable for any
misstatement or omission in this prospectus regardless of the particular Fund to
which it pertains.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO ALL
FUNDS)(1) CLASS A CLASS B CLASS C
------- ------------------------ -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)....................................... 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends............ None None None
Redemption Fees......................................... None None None
Exchange Fee............................................ None None None
Deferred Sales Charge (as a percentage of redemption
proceeds)............................................. None(3) 4% during the first None
year, 3% during the
second and third years,
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
- -------------------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares -- Initial Sales Charge Alternative -- Class A Shares."
(3) The redemption within one year of shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1% contingent
deferred sales charge. See "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares."
2
<PAGE> 4
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL VALUE+
BLUE CHIP GROWTH SMALL CAP TECHNOLOGY RETURN GROWTH
FUND(6) FUND(6) FUND FUND(6) FUND(6) FUND(7)
--------- ------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Management Fees(7)........................ .58% .54% .65% .56% .54% .60%
12b-1 Fees................................ None None None None None None
Other Expenses............................ .85% .58% .60% .35% .61% .90%
--------- ------ --------- ---------- ------- -------
Total Operating Expenses(7)............... 1.43% 1.12% 1.25% .91% 1.15% 1.50%
======= ====== ======= ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
TOTAL VALUE+
BLUE CHIP GROWTH SMALL CAP TECHNOLOGY RETURN GROWTH
FUND(6) FUND(6) FUND FUND(6) FUND(6) FUND(7)
--------- ------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Management Fees(7)........................ .58% .54% .65% .56% .54% .60%
12b-1 Fees(4)............................. .75% .75% .75% .75% .75% .75%
Other Expenses (estimated)................ .90% .81% 1.07% .64% .74% .93%
--------- ------ --------- ---------- ------- -------
Total Operating Expenses(7)............... 2.23% 2.10% 2.47% 1.95% 2.03% 2.28%
======= ====== ======= ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
TOTAL VALUE+
BLUE CHIP GROWTH SMALL CAP TECHNOLOGY RETURN GROWTH
FUND(6) FUND(6) FUND FUND(6) FUND(6) FUND(7)
--------- ------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Management Fees(7)........................ .58% .54% .65% .56% .54% .60%
12b-1 Fees(5)............................. .75% .75% .75% .75% .75% .75%
Other Expenses (estimated)................ .80% .76% .96% .48% .64% .90%
--------- ------ --------- ---------- ------- -------
Total Operating Expenses(7)............... 2.13% 2.05% 2.36% 1.79% 1.93% 2.25%
======= ====== ======= ======== ====== ======
</TABLE>
- -------------------------
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that it is unlikely because of the
automatic conversion feature described under "Purchase of Shares -- Deferred
Sales Charge Alternative -- Class B Shares."
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
(6) Management fees have been restated based upon the management fee that became
effective May 31, 1994.
(7) After management fee reduction for Value+Growth Fund for current fiscal
year.
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the following expenses on a Blue Chip $ 71 $ 100 $ 131 $219
$1,000 investment, assuming (1) 5% annual Growth $ 68 $ 91 $ 116 $186
return and (2) redemption at the end of Small Cap $ 69 $ 95 $ 122 $200
each time period: Technology $ 66 $ 85 $ 105 $163
Total Return $ 69 $ 92 $ 117 $189
Value+Growth $ 72 $ 102 -- --
</TABLE>
3
<PAGE> 5
EXAMPLE
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
------------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(8)
You would pay the following expenses on a Blue Chip $ 53 $ 90 $ 129 $ 218
$1,000 investment, assuming (1) 5% annual Growth $ 51 $ 86 $ 123 $ 195
return and (2) redemption at the end of Small Cap $ 55 $ 97 $ 142 $ 222
each time period: Technology $ 50 $ 81 $ 115 $ 176
Total Return $ 51 $ 84 $ 119 $ 192
Value+Growth $53 $91 -- --
You would pay the following expenses on Blue Chip $ 23 $ 70 $ 119 $ 218
the same investment, assuming no Growth $ 21 $ 66 $ 113 $ 195
redemption: Small Cap $ 25 $ 77 $ 132 $ 222
Technology $ 20 $ 61 $ 105 $ 175
Total Return $ 21 $ 64 $ 109 $ 192
Value+Growth $23 $71 -- --
CLASS C SHARES
You would pay the following expenses on a Blue Chip $ 22 $ 67 $ 114 $ 246
$1,000 investment, assuming (1) 5% annual Growth $ 21 $ 64 $ 110 $ 238
return and (2) redemption at the end of Small Cap $ 24 $ 74 $ 126 $ 270
each time period: Technology $ 18 $ 56 $ 97 $ 211
Total Return $ 20 $ 61 $ 104 $ 225
Value+Growth $23 $70 -- --
</TABLE>
- -------------------------
(8) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information.
Effective May 31, 1994, the investment management fee for the Blue Chip, Growth,
Technology and Total Return Funds changed. "Management Fees" have been restated
based upon the new management fee.
The base management fee for the Small Cap Fund is .65% and is subject to a
maximum upward or downward performance adjustment of .30 of 1%. The table
reflects the base management fee without any performance adjustment. The actual
management fees paid by Class A, Class B and Class C shares during the last
fiscal year were .74%, .47% and .47%, respectively. Differences in the
management fee among the classes were due to differences in time periods during
which shares were available for purchase and stock market activity. Class B and
Class C shares were not offered until May 31, 1994.
"Other Expenses" for Class B shares and Class C shares, which were not available
before May 31, 1994, have been estimated for the current fiscal year.
The Value+Growth Fund commenced the public offering of its shares on October 16,
1995, thus estimated expenses are shown for only the one and three year periods.
KFS has agreed to temporarily reduce its management fee and reimburse or pay
certain operating expenses to the extent necessary to limit the Fund's "Total
Operating Expenses" to the levels indicated in the tables above. Without such
waiver and reimbursement, "Management Fees" would be .72% and "Total Operating
Expenses" for Class A, B and C shares would be 1.62%, 2.40% and 2.37%,
respectively.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 6
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund except the
Value+Growth Fund expressed in terms of one share outstanding throughout the
period. The information in the tables for each Fund is covered by the report of
the Fund's independent auditors. The report for each Fund is contained in its
Registration Statement and is available from that Fund. The financial statements
contained in each Fund's 1994 Annual Report to Shareholders are incorporated
herein by reference and may be obtained by writing or calling that Fund.
BLUE CHIP FUND
<TABLE>
<CAPTION>
NOV. 23, 1987
YEAR ENDED OCTOBER 31, TO OCT. 31,
1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $13.88 12.72 13.24 9.65 10.07 8.41 9.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .18 .18 .11 .13 .18 .35
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.71) 1.13 .41 3.63 (.45) 1.78 (.80)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.52) 1.31 .59 3.74 (.32) 1.96 (.45)
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .15 .14 .15 .10 .30 .14
- ------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments .84 -- .97 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.03 .15 1.11 .15 .10 .30 .14
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.33 13.88 12.72 13.24 9.65 10.07 8.41
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (3.82) 10.35 4.76 39.19 (3.23) 24.08 (4.99)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.48 1.25 1.46 1.66 1.91 2.08 1.83
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.50 1.28 1.63 .88 1.28 1.99 4.47
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------- -----------
MAY 31, MAY 31,
1994 TO 1994 TO
OCTOBER 31, OCTOBER 31,
1994 1994
----------- -----------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.30 12.30
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .09
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.01) (.01)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .08
- ------------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .06 .06
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.29 12.32
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .42 .67
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.43 2.33
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .33 .43
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOV. 23, 1987
YEAR ENDED OCTOBER 31, TO OCT. 31,
1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $153,172 196,327 182,553 61,146 32,172 26,164 20,421
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 131 222 178 162 93 89 326
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 7
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $15.33 13.09 13.14 9.00 9.79 7.61 13.73 13.07 12.29 12.74
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 .01 .03 .06 .18 .17 .23 .20 .24 .33
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.41) 2.29 .71 4.57 (.79) 2.24 (2.83) 4.13 2.28 .67
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.40) 2.30 .74 4.63 (.61) 2.41 (2.60) 4.33 2.52 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .03 .05 .11 .18 .23 .21 .10 .30 .35
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on
investments 1.00 .03 .74 .38 -- -- 3.31 3.57 1.44 1.10
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.00 .06 .79 .49 .18 .23 3.52 3.67 1.74 1.45
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73 13.07 12.29
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (9.39) 17.60 5.55 54.13 (6.37) 32.60 (15.15) 44.69 23.37 9.14
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.09 1.00 1.03 1.04 .89 .83 .82 .80 .78 .79
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .06 .32 .59 1.84 2.11 3.38 1.67 1.96 2.73
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------- -------------
MAY 31, MAY 31,
1994 TO 1994 TO
SEPTEMBER 30, SEPTEMBER 30,
1994 1994
------------- -------------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $13.10 13.09
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) (.02)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions (.19) (.19)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.22) (.21)
- --------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain on investments -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.88 12.88
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (1.68) (1.60)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.11 2.09
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.76) (.67)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of
year (in thousands) $2,255,977 1,826,961 1,419,292 613,245 307,555 335,998 285,485 376,045 275,060 246,584
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(%) 115 139 83 143 194 160 61 247 181 97
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 8
SMALL CAP FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993 1992(a) 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 6.45 5.25 5.35 3.79 4.71 3.66 6.69 5.80 4.93 4.59
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) (.02) (.02) .02 .05 .10 .05 .09 .10 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.27) 1.71 .40 1.89 (.86) 1.00 (1.45) 1.82 1.01 .33
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.28) 1.69 .38 1.91 (.81) 1.10 (1.40) 1.91 1.11 .44
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .01 .06 .11 .05 .13 -- .11 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on
investments .36 .49 .47 .29 -- -- 1.50 1.02 .13 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .36 .49 .48 .35 .11 .05 1.63 1.02 .24 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69 5.80 4.93
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (4.31) 34.11 7.02 55.16 (17.52) 30.58 (17.34) 39.40 23.71 9.85
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.34 1.03 1.28 1.25 .86 .64 .72 .53 .48 .46
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.76) (.43) (.43) .27 1.22 2.55 1.42 1.62 1.83 2.29
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------- -------------
MAY 31, MAY 31,
1994 TO 1994 TO
SEPTEMBER 30, SEPTEMBER 30,
1994 1994
------------- -------------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $5.65 5.65
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .15 .15
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .12
- --------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain on investments -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.78 5.77
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 2.30 2.12
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.29 2.10
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.38) (1.21)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $631,607 510,060 329,116 289,345 179,092 286,411 284,426 353,111 273,736 190,896
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58 82 73 126 107 100 90 115 113 60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
TECHNOLOGY FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993(a) 1992 1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $10.68 9.95 12.42 9.37 10.19 9.39 11.76 13.82 11.45 11.77
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) -- (.01) .01 .13 .22 .26 .18 .19 .20 .20
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.49 2.03 .04 3.35 (.45) 1.28 .07 .56 3.03 1.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.49 2.02 .05 3.48 (.23) 1.54 .25 .75 3.23 1.23
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .03 .20 .29 .23 .12 .13 .21 .26
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments .67 1.29 2.49 .23 .30 .51 2.50 2.68 .65 1.29
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .67 1.29 2.52 .43 .59 .74 2.62 2.81 .86 1.55
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76 13.82 11.45
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 14.95 21.76 .32 38.58 (2.51) 18.19 3.84 6.32 29.79 11.73
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .89 .81 .82 .81 .71 .69 .69 .63 .60 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .05 (.06) .07 1.24 2.23 2.92 2.26 1.17 1.58 2.10
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------- -----------
MAY 31, MAY 31,
1994 TO 1994 TO
OCTOBER 31, OCTOBER 31,
1994 1994
----------------------------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.99 9.99
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.05) (.05)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.51 1.51
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.46 1.46
- ---------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain on investments -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.45 11.45
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 14.61 14.61
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.99 1.83
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.08) (.92)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $713,654 612,604 559,279 606,295 472,992 532,760 513,800 566,241 598,722 624,108
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 81 95 95 81 25 39 11 41 37 48
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $11.23 10.07 10.07 7.78 8.34 7.34 7.24 8.78 7.28 6.52
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .30 .22 .36 .46 .37 .36 .27 .33 .28
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1.01) 1.54 .37 2.42 (.64) 1.04 .23 (.55) 1.77 .87
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.82) 1.84 .59 2.78 (.18) 1.41 .59 (.28) 2.10 1.15
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .23 .24 .29 .49 .38 .41 .29 .28 .21 .31
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on
investments 1.04 .44 .30 -- -- -- .20 .98 .39 .08
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution in excess of net realized
gain on investments .04 -- -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.31 .68 .59 .49 .38 .41 .49 1.26 .60 .39
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24 8.78 7.28
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (7.92) 19.08 6.09 37.20 (2.31) 20.00 8.75 (4.18) 30.57 18.24
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.13 1.02 1.06 1.03 .87 .79 .78 .72 .72 .76
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.34 2.94 2.23 3.96 5.87 4.76 5.10 3.05 4.02 4.02
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------- -----------
MAY 31, MAY 31,
1994 TO 1994 TO
OCTOBER 31, OCTOBER 31,
1994 1994
----------------------------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.24 9.24
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .06
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.16) (.16)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.10) (.10)
- ---------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .05 .05
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.09 9.09
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (1.06) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.03 2.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.57 1.60
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $2,864,322 1,509,687 1,212,896 998,465 781,417 937,804 976,972 1,077,369 677,618 350,616
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 121 180 150 157 157 130 187 171 172 176
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Per share data were determined based on average shares outstanding.
Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges. The Funds are
organized as separate Massachusetts business trusts. As discussed under
"Investment Manager and Underwriter," effective May 31, 1994, the investment
management fee for some Funds changed, resulting in a higher fee for the Growth
Fund, the Technology Fund and the Total Return Fund and a lower
9
<PAGE> 11
fee for the Blue Chip Fund. The fee schedule for the Small Cap Fund is
unchanged, except that the performance adjustment is based upon the performance
of the Fund's Class A shares.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. Each Fund's returns and net asset value will fluctuate and there is no
assurance that any Fund will meet its objective.
BLUE CHIP FUND. The Blue Chip Fund seeks growth of capital and of income. In
seeking to achieve its objective, the Fund will invest primarily in common
stocks of well capitalized, established companies that the Fund's investment
manager believes to have the potential for growth of capital, earnings and
dividends. Under normal market conditions, the Fund will, as a fundamental
policy, invest at least 65%, and may invest up to 100%, of its total assets in
the common stocks of companies with a market capitalization of at least $1
billion at the time of investment.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known, high quality companies. Companies of this general type are
often referred to as "Blue Chip" companies. "Blue Chip" companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. "Blue Chip" companies are believed to generally exhibit
less investment risk and less price volatility than companies lacking these high
quality characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
high trading volume in those shares results in a relatively high degree of
liquidity for such investments. The characteristics of high quality and high
liquidity of "Blue Chip" investments should make the market for such stocks
attractive to investors both within and outside the United States. The Fund will
generally attempt to avoid speculative securities or those with significant
speculative characteristics.
Examples of "Blue Chip" companies currently eligible for investment by the Fund
include, but are not limited to, companies such as Pfizer Inc., Merck & Co.,
Inc., Hewlett-Packard Company, AT&T Company, General Reinsurance, J.P. Morgan &
Co., Union Pacific Corporation and PepsiCo. Inc. While the Fund's portfolio will
not be limited to the examples noted and need not contain any specific security,
companies of this general quality comprise a relatively small, select group. In
general, the Fund will seek to invest in those established, high quality
companies whose industries are experiencing favorable secular or cyclical
change. Thus, the Fund in seeking its objective will endeavor to select its
investments from among high quality companies operating in the more attractive
industries.
As indicated above, the Fund's investment portfolio will normally consist
primarily of common stocks. The Fund may invest to a more limited extent in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks, including warrants and rights, when they are
believed to offer opportunities for growth of capital and of income. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. The Fund may engage in short sales
against-the-box, although it is the Fund's current intention that no more than
5% of its net assets will be at risk. When, as a result of market conditions
affecting "Blue Chip" companies, a defensive position is deemed advisable to
help preserve capital, the Fund may temporarily invest without limit in
high-grade debt securities, securities of the U.S. Government and its agencies,
and high quality money market instruments, including repurchase agreements, or
retain cash.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
There are risks inherent in the investment in any security, including shares of
the Fund. The investment manager attempts to reduce risk through diversification
of the Fund's portfolio and fundamental research; however, there is no guarantee
that such efforts will be successful. The investment manager believes that there
are opportunities for
10
<PAGE> 12
growth of capital and growth of dividends from investments in "Blue Chip"
companies over time. The Fund's shares are intended for long-term investment.
GROWTH FUND. The Growth Fund seeks growth of capital through professional
management and diversification of investments in securities it believes to have
potential for capital appreciation. In seeking to obtain capital appreciation,
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. However, the Fund will emphasize
fundamental research in attempting to identify under-valued situations which it
is hoped will appreciate over the longer term. The Fund's investment policy may
involve a somewhat greater risk than is inherent in the ordinary investment
security. Since any income received from such securities will be entirely
incidental, an investor should not consider a purchase of Fund shares as
equivalent to a complete investment program.
In seeking to achieve its objective, it will be the Fund's policy to invest
primarily in securities which it 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 and in convertible
securities (including warrants), such as bonds and preferred stocks. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. There may also be times when a
significant portion of the Fund's assets may be held temporarily in cash or
defensive type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements, depending upon the investment manager's
analysis of business and economic conditions and the outlook for security
prices.
Some of the factors the Fund's management will consider in making its
investments are patterns of increasing growth in sales and earnings, the
development of new or improved products or services, favorable outlooks for
growth in the industry, the probability of increased operating efficiencies,
emphasis on research and development, cyclical conditions, or other signs that a
company is expected to show greater than average capital appreciation and
earnings growth.
SMALL CAP FUND. The Small Cap Fund seeks maximum appreciation of investors'
capital. Current income will not be a significant factor. The Fund is designed
primarily for investors with substantial resources and the investment experience
to consider their shares as a long-term investment involving financial risk
commensurate with potential substantial gains.
The Fund seeks attractive areas for investment opportunity arising from such
factors as technological advances, new marketing methods, and changes in the
economy and population. Currently, the investment manager believes that such
investment opportunities may be found among the following: (a) companies engaged
in high technology fields such as electronics, medical technology, computer
software and specialty retailing; (b) companies having a significantly improved
earnings outlook as the result of a changed economic environment, acquisitions,
mergers, new management, changed corporate strategy or product innovation; (c)
companies supplying new or rapidly growing services to consumers and businesses
in such fields as automation, data processing, communications, marketing and
finance; and (d) companies having innovative concepts or ideas.
As a non-fundamental policy, at least 65% of the Fund's total assets normally
will be invested in the equity securities of smaller companies, i.e., those
having a market capitalization of $1 billion or less at the time of investment,
many of which would be in the early stages of their life cycle. The investment
manager currently believes that investment in such companies may offer greater
opportunities for growth of capital than larger, more established companies, but
also involves certain special risks. Smaller companies often have limited
product lines, markets, or financial resources, and they may be dependent upon
one or a few key people for management. The securities of such companies
generally are subject to more abrupt or erratic market movements and may be less
liquid than securities of larger, more established companies or the market
averages in general.
11
<PAGE> 13
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed by the investment manager to
offer opportunities for capital growth. The Fund may also purchase options,
engage in financial futures transactions, purchase foreign securities, engage in
related foreign currency transactions and lend its portfolio securities. See
"Special Risk Factors--Foreign Securities" and "Additional Investment
Information" below. When a defensive position is deemed advisable, it may,
without limit, invest in high-grade senior securities and securities of the U.S.
Government and its instrumentalities or retain cash or cash equivalents,
including repurchase agreements.
In the selection of investments, long-term capital appreciation will take
precedence over short range market fluctuations. The Fund does not intend to
engage actively in trading for short-term profits, although it may occasionally
make investments for short-term capital appreciation when such action is
believed to be desirable and consistent with sound investment procedure.
Generally, the Fund will make long-term rather than short-term investments.
Nevertheless, it may dispose of such investments at any time it may be deemed
advisable because of a subsequent change in the circumstances of a particular
company or industry or in general market or economic conditions. For example, a
security initially purchased for long-term growth potential may be sold at any
time when it is determined that future growth may not be at an acceptable rate
or that there is a risk of substantial decline in market price. The rate of
portfolio turnover is not a limiting factor when changes in investments are
deemed appropriate. In addition, market conditions, cash requirements for
redemption and repurchase of Fund shares or other factors could affect the
portfolio turnover rate.
Since many of the securities in the Fund's portfolio may be considered
speculative in nature by traditional investment standards, substantially greater
than average market volatility and investment risk may be involved. There can be
no assurance that the Fund's shareholders will be protected from the risk of
loss inherent in security ownership.
TECHNOLOGY FUND. The Technology Fund seeks growth of capital. In seeking to
achieve its objective, the Fund will invest primarily in securities of companies
which the investment manager expects to benefit from technological advances and
improvements ("technology companies") with an emphasis on the securities of
companies that the investment manager believes have potential for long-term
capital growth. Receipt of income from such securities will be entirely
incidental. Technology companies include those whose processes, products or
services, in the judgment of the investment manager, are or may be expected to
be significantly benefited by scientific developments and the application of
technical advances in industry, manufacturing and commerce resulting from
improving technology in such fields as, for example, aerospace, chemistry,
electronics, genetic engineering, geology, information sciences (including
computers and computer software), metallurgy, medicine (including pharmacology,
biotechnology and biophysics) and oceanography. This investment policy permits
the investment manager to seek stocks having superior growth potential in
virtually any industry in which they may be found. The above objective and
policies may not be changed without shareholder approval.
The investment manager currently believes that investments in smaller emerging
growth technology companies may offer greater opportunities for growth of
capital than investments in larger, more established technology companies.
However, such investments also involve certain special risks. Smaller companies
often have limited product lines, markets, or financial resources; and they may
be dependent upon one or a few persons for management. The securities of such
companies generally are subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. Thus, investment by the Fund in smaller emerging growth technology
companies may expose investors to greater than average financial and market
risk. There is no assurance that the Fund's objective will be achieved.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed to offer opportunities for
capital growth. The Fund may also purchase and write options, engage in
financial futures transactions, purchase foreign securities, engage in related
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign
12
<PAGE> 14
Securities" and "Additional Investment Information" below. When a defensive
position is deemed advisable, the Fund may, without limit, invest in high-grade
senior securities and securities of the U.S. Government and its
instrumentalities or retain cash or cash equivalents, such as high quality money
market instruments, including repurchase agreements. The Fund's shares are
intended for long-term investment.
The Fund may invest up to 10% of its total assets in entities, such as limited
partnerships or trusts, that invest primarily in the securities of technology
companies. The investment manager believes that the flexibility to make limited
indirect investment in technology companies through entities such as limited
partnerships and trusts will provide the Fund with increased opportunities for
growth of capital. However, there is no assurance that such investments will be
profitable. Entities that invest in the securities of technology companies
normally have management fees and other costs that are in addition to those of
the Fund. Such fees and costs will reduce any returns directly attributable to
the underlying technology companies. The effect of these fees will be considered
by the investment manager in connection with any decision to invest in such
entities. Securities issued by these entities are normally privately placed,
restricted and illiquid.
The Fund purchases securities for long-term investment, but it is the investment
manager's belief that a sound investment program must be flexible in order to
meet changing conditions, and changes in holdings will be made whenever deemed
advisable.
TOTAL RETURN FUND. The Total Return Fund seeks the highest total return, a
combination of income and capital appreciation, consistent with reasonable risk.
The Fund will emphasize liberal current income in seeking its objective. The
Fund's investments will normally consist of domestic and foreign fixed income
and equity securities. Fixed income securities will include bonds and other debt
securities (such as U.S. and foreign Government securities and investment grade
and high yield corporate obligations) and preferred stocks, some of which may
have a call on common stocks through attached warrants or a conversion
privilege. The percentage of assets invested in specific categories of fixed
income and equity securities will vary from time to time depending upon the
judgment of management as to general market and economic conditions, trends in
yields and interest rates and changes in fiscal or monetary policies. The Fund
may also purchase options, engage in financial futures transactions, engage in
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign Securities" and "Additional Investment Information" below.
As noted above, the Fund may invest in high yield fixed income securities which
are in the lower rating categories and those which are unrated. Thus, the Fund
could invest in some instruments considered by the rating services to have
predominantly speculative characteristics. Investments in lower rated or
non-rated securities, while generally providing greater income and opportunity
for gain than investments in higher rated securities, entail greater risk of
loss of income and principal. Currently, it is anticipated that the Fund would
invest less than 35% of its total assets in high yield bonds. For a discussion
of lower rated and non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below.
The Fund does not make investments for short-term profits, but it is not
restricted in policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
and market prices may dictate and as its investment policy may require.
VALUE+GROWTH FUND. The Value+Growth Fund seeks growth of capital through
professional management of a portfolio of growth and value stocks. These stocks
include stocks of large established companies, as well as stocks of small
companies. A secondary objective is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only value stocks.
Growth stocks are stocks of companies whose earnings per share are expected by
the investment manager to grow faster than the market average. Growth stocks
tend to trade at higher price to earnings (P/E) ratios than the general market,
but the investment manager believes that the potential of such stocks for above
average earnings more than justifies their price. Value stocks are considered
"bargain stocks" because they are perceived as undervalued, i.e.,
13
<PAGE> 15
attractively priced in relation to their earnings potential (low P/E ratios).
Value stocks typically have dividend yields higher than the average of the
companies represented in the Standard & Poor's 500 Stock Index.
The allocation between growth and value stocks in the Fund's portfolio will be
made by the investment manager's Quantitative Research Department with the help
of a proprietary model that evaluates macro-economic factors such as the
strength of the economy, interest rates and special factors concerning growth
and value stocks. Historically, the performance of growth and value stocks has
tended to be counter-cyclical, i.e., when one was in favor, the other was out of
favor relative to the equity market in general. Through the allocation process,
the investment manager will seek to weight the portfolio more heavily in the
type of stocks that are believed to present greater return opportunities at the
time. The neutral allocation between growth and value stocks would be 50%/50%.
Although allocations in favor of growth or value normally would not be expected
to exceed 60%, the allocation to growth or value may be up to 75% at any time.
Allocation decisions are normally based upon long-term considerations and
changes would normally be expected to be gradual. There is no assurance that the
allocation process will improve investment results.
KFS manages the growth portion of the Fund. In managing the growth portion of
the portfolio, KFS emphasizes stock selection and fundamental research in
seeking to enhance long-term performance potential. KFS considers a number of
quantitative and qualitative factors in considering whether to invest in a stock
including high return on equity and earnings growth rate, low level of debt,
strong balance sheet, good management and industry leadership. DVA manages the
value portion of the Fund. DVA seeks stocks it believes to be undervalued. The
principal factor considered is P/E ratios. Typically stocks of both types will
have a market capitalization in excess of $1 billion. In selecting among stocks
with low P/E ratios, DVA considers other factors such as financial strength,
book to market value, earnings and dividend growth rates, return on equity and
earnings estimates.
Although it is anticipated that the Fund will invest primarily in common stocks
of domestic companies, the Fund may also purchase convertible securities, such
as bonds and preferred stocks (including warrants and rights). The Fund may also
purchase options, engage in financial futures transactions, purchase foreign
securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. From time to time, a significant
portion of the Fund's assets may be held temporarily in cash or defensive type
securities, such as high-grade debt securities, securities of the U.S.
Government or its agencies and high quality money market instruments, including
repurchase agreements.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Funds invest primarily in
securities that are publicly traded in the United States; but, they have
discretion to invest a portion of their assets in foreign securities that are
traded principally in securities markets outside the United States. The Funds
currently limit investment in foreign securities not publicly traded in the
United States to 25% of their total assets. The Funds may also invest without
limit in U.S. Dollar denominated American Depository Receipts ("ADRs"), which
are bought and sold in the United States and are not subject to the preceding
limitation. In connection with their foreign securities investments, the Funds
may, to a limited extent, engage in foreign currency exchange, options and
futures transactions as a hedge and not for speculation. Additional information
concerning foreign securities and related techniques is contained under
"Additional Investment Information" below and "Investment Policies and
Techniques" in the Statement of Additional Information.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
14
<PAGE> 16
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
EMERGING MARKETS. While each Fund's investments in foreign securities will
principally be in developed countries, a Fund may make investments in developing
or "emerging" countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and most Western European countries. Currently,
investing in many emerging markets may not be desirable or feasible because of
the lack of adequate custody arrangements for a Fund's assets, overly burdensome
repatriation and similar restrictions, the lack of organized and liquid
securities markets, unacceptable political risks or other reasons. As
opportunities to invest in securities in emerging markets develop, a Fund may
expand and further broaden the group of emerging markets in which it invests. In
the past, markets of developing or emerging market countries have been more
volatile than the markets of developed countries; however, such markets often
have provided higher rates of return to investors. The investment manager
believes that these characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Certain emerging
markets may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in
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such markets and ultimately can expose the Fund to the risk of losses resulting
from a Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. A Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
FIXED INCOME. Since most foreign fixed income securities are not rated, a Fund
(principally the Total Return Fund) will invest in foreign fixed income
securities based on the investment manager's analysis without relying on
published ratings. Since such investments will be based upon the investment
manager's analysis rather than upon published ratings, achievement of a Fund's
goals may depend more upon the abilities of the investment manager than would
otherwise be the case.
The value of the foreign fixed income securities held by a Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which a Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Fund's investments
in foreign fixed income securities, and the extent to which a Fund hedges its
interest rate, credit and currency exchange rate risks. Many of the foreign
fixed income obligations in which a Fund will invest will have long maturities.
A longer average maturity generally is associated with a higher level of
volatility in the market value of such securities in response to changes in
market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to other debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Fund. A significant
portion of the sovereign debt in which a Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
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
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enterprises. A 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 a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatization will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Funds may also
invest in European Depository Receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily denominated
in the currency of the underlying security.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the Total
Return Fund may invest a portion of its assets in fixed income securities that
are in the lower rating categories (below the fourth category) of recognized
rating agencies or are non-rated. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories. Lower rated and non-rated securities, which are
commonly referred to as "junk bonds," have widely varying characteristics and
quality. The market values of such securities tend to reflect individual
corporate developments to a greater extent than do those of higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also are more sensitive to economic
conditions than are higher rated securities. Adverse publicity and investor
perceptions regarding lower rated bonds, whether or not based upon fundamental
analysis, may depress the prices for such securities. These and other factors
adversely affecting the market value of high yield securities will adversely
affect the Fund's net asset value. Although some risk is inherent in all
securities ownership, holders of fixed income securities have a claim on the
assets of the issuer
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prior to the holders of common stock. Therefore, an investment in fixed income
securities generally entails less risk than an investment in common stock of the
same issuer. The Fund may have difficulty disposing of certain high yield
securities because they may have a thin trading market. The lack of a liquid
secondary market may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing these
assets. Additional information concerning high yield securities appears under
"Investment Policies and Techniques--Other Considerations--High Yield (High
Risk) Bonds" and "Appendix--Ratings of Fixed Income Investments" in the
Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates for the Funds
(other than the Value+Growth Fund) are listed under "Financial Highlights." It
is anticipated that, under normal circumstances, the portfolio turnover rate for
the Value+Growth Fund will not exceed 100%. Certain Funds may experience high
turnover rates (over 100%). Higher portfolio turnover involves correspondingly
greater brokerage commissions or other transaction costs. Higher portfolio
turnover may result in the realization of greater net short-term capital gains.
In order to continue to qualify as a regulated investment company for federal
income tax purposes, less than 30% of the annual gross income of a Fund must be
derived from the sale or other disposition of securities and certain other
investments held by a Fund for less than three months. See "Dividends and Taxes"
in the Statement of Additional Information.
The Blue Chip Fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes and not for leverage 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 Growth, Small Cap, Technology, Total Return
and Value+Growth Funds each may not borrow money except for temporary or
emergency purposes (but not for the purchase of investments) and then only in an
amount not to exceed 5% of its net assets. These Funds may not pledge their
assets in an amount exceeding the amount of the borrowings secured by such
pledge.
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities. See "Investment Policies and Techniques--Over-the-Counter
Options" in the Statement of Additional Information for a description of the
extent to which over-the-counter traded options are in effect considered as
illiquid for purposes of the limit on illiquid securities for the Funds.
Each Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and which, together with
the investment objective and policies of a Fund (other than policies that are
not 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 a 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 a Fund. Policies of
the Blue Chip and Value+Growth Funds that are neither designated as fundamental
nor incorporated into any of the fundamental investment restrictions referred to
above are not fundamental and may be changed by the Board of Trustees of the
Fund without shareholder approval.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Funds may each deal in options
on securities, securities indexes and foreign currencies, which options may be
listed for trading on a national securities exchange or traded over-the-counter.
The Technology Fund may write (sell) covered call and secured put options on up
to 25% of net assets and may purchase put and call options provided that no more
than 5% of its net assets may be invested in premiums on such options. The Blue
Chip, Growth, Small Cap, Total Return and Value+Growth Funds may each invest up
to 5% of net assets in put and call options on securities, securities indices
and foreign currencies. A Fund will not enter
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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.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying security or other asset at
the exercise price during the option period. The writer of a covered call owns
securities or other assets that are acceptable for escrow and the writer of a
secured put invests an amount not less than the exercise price in eligible
securities or other assets to the extent that it is obligated as a writer. If a
call written by a Fund is exercised, the Fund foregoes any possible profit from
an increase in the market price of the underlying security or other asset over
the exercise price plus the premium received. In writing puts, there is a risk
that a Fund may be required to take delivery of the underlying security or other
asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
a Fund may experience material losses. However, in writing options (for the
Technology Fund) the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities or other assets, and a wider range
of expiration dates and exercise prices, than for exchange traded options.
Each Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. A Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with their foreign securities investments, the Funds may also engage
in foreign currency financial futures transactions.
The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, when the near-term
market view is bearish but the portfolio composition is judged satisfactory for
the longer term, exposure to temporary declines in the market may be reduced by
entering into futures contracts to sell securities or the cash value of a
securities index. Conversely, where the near-term view is bullish, but the Fund
is believed to be well positioned for the longer term with a high cash position,
the Fund can hedge against market increases by entering into futures contracts
to buy securities or the cash value of a securities index. In either case, the
use of futures contracts would tend to reduce portfolio turnover and facilitate
the Fund's pursuit of its investment objective.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. 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 market could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators,
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager still may not result in a successful hedging
transaction. If any of these events should occur, a Fund could lose money on
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the financial futures contracts and also on the value of its portfolio assets.
The costs incurred in connection with futures transactions could reduce a Fund's
return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
FOREIGN CURRENCY TRANSACTIONS. The Funds may invest a portion of their assets in
securities denominated in foreign currencies. The Funds may engage in foreign
currency transactions in connection with their investments in foreign securities
but will not speculate in foreign currency exchange.
The value of the foreign securities investments of a Fund measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. A
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains that might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for a 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.
A Fund will not speculate in foreign currency exchange. A Fund will not enter
into such forward contracts or maintain a net exposure in such contracts where
the Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's securities or other assets denominated in that
currency. The Funds do not intend to enter into such forward contracts if they
would have more than 15% of the value of their total assets committed to forward
contracts for the purchase of a foreign currency. A Fund segregates cash or
liquid high-grade securities in an amount not less than the value of the Fund's
total assets committed to forward foreign currency exchange contracts entered
into for
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the purchase of a foreign currency. If the value of the securities segregated
declines, additional cash or securities are added so that the segregated amount
is not less than the amount of the Fund's commitments with respect to such
contracts. A Fund generally does not enter into a forward contract with a term
longer than one year.
DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, each Fund may invest in a broad
array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used 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 each Fund and the techniques employed by the investment
manager may change over time as new derivatives and strategies are developed or
regulatory changes occur.
RISK CONSIDERATIONS. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures contracts or other derivatives and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivative intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivatives contracts in order to continue
to qualify for beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code; and (f) the possible non-performance
of the counter-party to the derivative contract.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Funds may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or U.S. Government securities) equal to
no less than the market value, determined daily, of the securities loaned. The
Funds will receive amounts equal to dividends or interest on the securities
loaned. The Funds 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 investment manager to be of good standing, and when the investment
manager believes the potential earnings justify the attendant risk. Management
will limit such lending to not more than one-third of the value of a Fund's
total assets.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. Dreman
Value Advisors, Inc. ("DVA") is the sub-adviser for the Value+Growth Fund. See
"Value+Growth Fund" below for information about DVA. KFS is one of the largest
investment managers in the country and has been engaged in the management of
investment funds for more than forty-five years. KFS and its affiliates provide
investment advice and manage investment portfolios for the Kemper Funds, the
Kemper insurance companies, Kemper Corporation and other corporate, pension,
profit-sharing and individual accounts representing approximately $60 billion
under management. KFS acts as investment manager for 26 open-end and seven
closed-end investment companies, with 64 separate investment portfolios,
representing more than 3 million shareholder accounts. KFS is a wholly-owned
subsidiary of Kemper Financial Companies, Inc., which is a financial services
holding company that is more than 99% owned by Kemper Corporation, a diversified
insurance and financial services holding company.
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Kemper Corporation has entered into a definitive agreement with an investor
group led by Zurich Insurance Company ("Zurich") pursuant to which Kemper
Corporation would be acquired by the investor group in a merger transaction. As
part of the transaction, Zurich or an affiliate would purchase KFS. The Kemper
Corporation and Zurich boards have approved the transaction. In addition,
because the transaction would constitute an assignment of the Funds' investment
management agreements with KFS and, potentially, Rule 12b-1 agreements under the
Investment Company Act of 1940, and therefore a termination of such agreements,
KFS has received approval of new agreements from the Funds' boards and
shareholders. Consummation of the transaction is subject to remaining
contingencies, including approval by the stockholders of Kemper Corporation and
state insurance department regulatory approvals. The investor group has informed
Kemper that it expects the transaction to close early in 1996.
Responsibility for overall management of each Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by KFS.
The investment management agreements provide that KFS shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities. KFS will from time to time use the services of Kemper Investment
Management Company Limited, 1 Fleet Place, London EC4M 7RQ, a wholly-owned
subsidiary of KFS, with respect to foreign securities investments of the Funds
including analysis, research, execution and trading services.
Tracy McCormick Chester has been the portfolio manager of the Blue Chip Fund
since September, 1994 when she joined KFS. She is a vice president of the Blue
Chip Fund and senior vice president of KFS. Prior to coming to KFS, she was a
senior vice president and portfolio manager of an investment management company;
and prior thereto, she managed private accounts. She received a B.A. and an
M.B.A. in Finance from Michigan State University, East Lansing, Michigan.
Steven H. Reynolds and the KFS Equity Investment Committee have managed the
Growth Fund since September, 1995. Mr. Reynolds joined KFS in September, 1995 as
an executive vice president and chief investment officer -- equities.
Immediately prior to joining KFS, he was a senior vice president and equity
portfolio manager of an investment manager; and prior thereto, he was a senior
vice president, managing director and head of active equities at a national
bank. Mr. Reynolds received a bachelor's degree from Johns Hopkins University,
Baltimore, Maryland, and an M.B.A. in finance from the University of Virginia,
Charlottesville, Virginia.
Karen A. Hussey has been the portfolio manager of the Small Cap Fund since
September, 1994 when she joined KFS. She is a vice president of the Small Cap
Fund and senior vice president of KFS. Prior to joining KFS, she was a portfolio
manager for a national bank. She received a B.S. from Southwest Missouri State,
Springfield, Missouri and did graduate work towards an M.B.A. at St. Louis
University. Ms. Hussey is a Chartered Financial Analyst.
Frank D. Korth and Richard A. Goers are the co-portfolio managers of the
Technology Fund. Mr. Korth has served as co-portfolio manager since January
1994. Mr. Korth joined KFS in March 1990 and is currently a senior vice
president of KFS and a vice president of the Fund. Prior to coming to KFS, Mr.
Korth was president and portfolio manager of a mutual fund investing primarily
in equity securities. He received a B.A. in Math from Mankato State University,
Mankato, Minnesota and an M.B.A. in Finance from Bernard Baruch College, New
York, New York. Mr. Korth is a Chartered Financial Analyst. Mr. Goers has served
as a portfolio manager since 1991. Mr. Goers joined KFS in January 1971 and is
currently a senior vice president of KFS and a vice president of the Fund. Mr.
Goers received a B.S. in Industrial Business Administration from Iowa State
University, Ames, Iowa and an M.B.A. in Finance from Northwestern University,
Chicago, Illinois. Mr. Goers is a Chartered Financial Analyst.
Gary A. Langbaum has been the portfolio manager of the Total Return Fund since
February 1995. He is assisted by investment personnel who specialize in certain
areas. Mr. Langbaum joined KFS in 1988 and is currently an executive vice
president of KFS. He received a B.A. in Finance from the University of Maryland,
College Park, Maryland.
Daniel J. Bukowski has been a portfolio co-manager of the Value+Growth Fund
since it commenced operations in October, 1995. Mr. Bukowski joined KFS in 1989
and is a senior vice president and Director of Quantitative Research of KFS and
a vice president of the Value+Growth Fund. Mr. Bukowski received a B.A. in
Statistics and an
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M.B.A. in Finance from the University of Chicago, Chicago, Illinois. Steven H.
Reynolds has been a portfolio co-manager of the Value+Growth Fund since its
inception. See above for biographical information about Mr. Reynolds. David N.
Dreman is also a portfolio co-manager of the Value+Growth Fund. See
"Value+Growth Fund" below for more information on management of that Fund and
Mr. Dreman.
KFS has an Equity Investment Committee that determines overall investment
strategy for equity portfolios managed by KFS. The Equity Investment Committee
is currently comprised of the following members: Daniel J. Bukowski, Tracy
McCormick Chester, James H. Coxon, Richard A. Goers, Karen A. Hussey, Frank D.
Korth, Gary A. Langbaum, Maura J. Murrihy, Thomas M. Regner, Steven H. Reynolds
and Stephen B. Timbers. The portfolio managers work together as a team with the
Equity Investment Committee and various equity analysts and equity traders to
manage each Fund's investments. Equity analysts--through research, analysis and
evaluation--work to develop investment ideas appropriate for the Fund. These
ideas are studied and debated by the Equity Investment Committee and, if
approved, are added to a list of eligible investments. The portfolio managers
use the list of eligible investments to help them structure the Fund's portfolio
in a manner consistent with the Fund's objective. The KFS International Equity
Investments area, directed by Dennis H. Ferro, and the KFS International Fixed
Income Investments area, directed by Gordon K. Johns, provide research and
analysis regarding foreign investments to the portfolio managers. After
investment decisions are made, equity traders execute the portfolio manager's
instructions through various broker-dealer firms.
The Funds (other than the Small Cap Fund) pay KFS investment management fees,
payable monthly, at the annual rates shown below. Before May 31, 1994, each Fund
(other than the Small Cap Fund and Value+Growth Fund) paid KFS an investment
management fee under different schedules that are described in the Statement of
Additional Information. The Small Cap Fund pays a base annual management fee,
payable monthly, at the rate of .65 of 1% of the average daily net assets of the
Fund. This base fee is subject to upward or downward adjustment between .35 and
.95 of 1% on the basis of the investment performance of the Class A shares of
the Fund compared with the performance of the Standard & Poor's 500 Stock Index
as described in the Statement of Additional Information.
<TABLE>
<CAPTION>
BLUE CHIP,
GROWTH,
TECHNOLOGY
AND TOTAL VALUE+
AVERAGE DAILY NET ASSETS RETURN FUNDS GROWTH FUND
- --------------------------------------------------------------------- ---------------- -----------
<S> <C> <C>
$0 - $250 million.................................................... .58% .72%
$250 million - $1 billion............................................ .55 .69
$1 billion - $2.5 billion............................................ .53 .66
$2.5 billion - $5 billion............................................ .51 .64
$5 billion - $7.5 billion............................................ .48 .60
$7.5 billion - $10 billion........................................... .46 .58
$10 billion - $12.5 billion.......................................... .44 .56
Over $12.5 billion................................................... .42 .54
</TABLE>
KFS has agreed to temporarily reduce its investment management fee and reimburse
or pay operating expenses of the Value+Growth Fund to the extent necessary to
limit the Fund's operating expenses to the levels described under "Summary of
Expenses." For this purpose "operating expenses" do not include taxes, interest,
extraordinary expenses, brokerage commissions or transaction costs. KFS can
terminate this arrangement at any time upon notice to the Fund.
VALUE+GROWTH FUND. As mentioned above, DVA is the sub-adviser for the
Value+Growth Fund. Under the terms of the Sub-Advisory Agreement, DVA will
manage the value portion of the Fund and will provide such other investment
advice, research and assistance as KFS may, from time to time, reasonably
request. DVA, which was formed in October, 1994, has served as investment
manager for Kemper-Dreman Fund, Inc. ("KDF") and certain institutional accounts
since August, 1995 when it acquired substantially all the assets of Dreman Value
Management,
23
<PAGE> 25
L.P., the former adviser for KDF. DVA is a wholly-owned subsidiary of KFS and is
located at 10 Exchange Place, Suite 2050, Jersey City, New Jersey 07302. KFS
pays DVA for its services a sub-advisory fee, payable monthly at the annual rate
of .25% of average daily net assets of the Fund. David N. Dreman has been a
portfolio co-manager of the Fund and primarily responsible for management of the
value portion of the Value+Growth Fund since its inception in 1995. Mr. Dreman
is the Chairman and a Director of DVA and a vice president of the Fund. Mr.
Dreman is a pioneer of the philosophy of contrarian investing (buying what is
out of favor) and a leading proponent of the low P/E investment style. He is a
columnist for Forbes and the author of several books on the value style of
investing. Mr. Dreman received a Bachelor of Finance in Commerce from the
University of Manitoba, Winnipeg, Manitoba, Canada.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), an affiliate of KFS, is the principal underwriter and distributor of
each Fund's shares and acts as agent of each Fund in the sale of its shares. KDI
bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI provides for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI bears the cost
of qualifying and maintaining the qualification of Fund shares for sale under
the securities laws of the various states and each Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services to investors.
KDI also may provide some of the distribution services. Before February 1, 1995,
KFS was the principal underwriter and distributor.
Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares.
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75 of 1% of
average daily net assets of each Fund attributable to Class B shares. This fee
is accrued daily as an expense of Class B shares. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares." KDI currently
compensates firms for sales of Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75 of 1% of
average daily net assets of each Fund attributable to Class C shares. This fee
is accrued daily as an expense of Class C shares. KDI currently pays firms for
sales of Class C shares a distribution fee, payable quarterly, at an annual rate
of .75 of 1% of net assets attributable to Class C shares maintained and
serviced by the firm. A firm becomes eligible for the distribution fee based
upon assets in accounts in the month of purchase and the fee continues until
terminated by KDI or a Fund.
Rule 12b-1 Plan. Since each distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. The table below shows amounts paid in
24
<PAGE> 26
connection with each Fund's Rule 12b-1 Plan during its 1994 fiscal year (except
the Value+Growth Fund which commenced operations October 16, 1995).
<TABLE>
<CAPTION>
DISTRIBUTION FEES
DISTRIBUTION EXPENSES PAID CONTINGENT DEFERRED
INCURRED BY BY FUND TO SALES CHARGES PAID
UNDERWRITER UNDERWRITER TO UNDERWRITER
--------------------- -------------------- -------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B
- ----------------------------------------- ---------- ------- --------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Blue Chip................................ $ 50,000 5,000 4,000 -- 2,000
Growth................................... $2,222,000 23,000 1,794,000 2,000 534,000
Small Cap................................ $ 904,000 18,000 390,000 1,000 104,000
Technology............................... $ 47,000 3,000 4,000 -- --
Total Return............................. $4,622,000 48,000 3,909,000 3,000 1,158,000
</TABLE>
If a Rule 12b-1 Plan is terminated in accordance with its terms, the obligation
of a Fund to make payments to KDI pursuant to the Plan will cease and the Fund
will not be required to make any payments past the termination date. Thus, there
is no legal obligation for the Fund to pay any expenses incurred by KDI in
excess of its fees under a Plan, if for any reason the Plan is terminated in
accordance with its terms. Future fees under a Plan may or may not be sufficient
to reimburse KDI (or KFS as predecessor to KDI) for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding each Fund and its special
features, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI bears all its expenses
of providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreements,
each Fund pays KDI a fee, payable monthly, at the annual rate of up to .25 of 1%
of average daily net assets of each class of such Fund. KDI then pays each firm
a service fee at an annual rate of up to .25 of 1% of net assets of each class
of those accounts that it maintains and services for each Fund. Firms to which
service fees may be paid include broker-dealers affiliated with KDI. A firm
becomes eligible for the service fee based on assets in the accounts in the
month following the month of purchase (in the month of purchase for Class C
Shares) and the fee continues until terminated by KDI or a Fund. The fees are
calculated monthly and paid quarterly. KDI may advance to financial services
firms the first year service fee related to Class B shares sold by such firms at
a rate of up to .25 of 1% of the purchase price of such shares. As compensation
therefor, KDI may retain the administrative services fee paid by a Fund with
respect to such shares for the first year after purchase. Financial services
firms will become eligible for future service fees with respect to such shares
commencing in the thirteenth month following the month of purchase.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on a Fund's records and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each Fund while this procedure is
in effect will depend upon the proportion of Fund assets that is in accounts for
which there is a firm of record.
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, as sub-custodian, have custody of all securities and cash of each Fund
maintained in the United States. The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, New York 11245, as
25
<PAGE> 27
custodian, has custody of all securities and cash of each Fund held outside the
United States. IFTC also is the Funds' transfer agent and dividend-paying agent.
Pursuant to a services agreement with IFTC, Kemper Service Company, an affiliate
of KFS, serves as "Shareholder Service Agent" of the Funds and, as such,
performs all of IFTC's duties as transfer agent and dividend-paying agent. For a
description of custodian, transfer agent and shareholder service agent fees, see
"Investment Manager and Underwriter" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS. KFS places all orders for purchases and sales of a
Fund's securities (except that DVA places all orders for the value portion of
the Value+Growth Fund). Subject to seeking best execution of orders, KFS or DVA
may consider sales of shares of a Fund and other funds managed by KFS and DVA as
a factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Growth, Small Cap, Technology and Value+Growth Funds;
semi-annually for the Blue Chip Fund; and quarterly for the Total Return Fund.
Each Fund distributes any net realized short-term and long-term capital gains at
least annually. The quarterly distribution to shareholders of the Total Return
Fund may include short-term capital gains.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends and a minimum account value of $1,000 in the Kemper
Fund in which dividends are reinvested. The Funds will reinvest dividend checks
(and future dividends) in shares of that same Fund and class if checks are
returned as undeliverable.
TAXES. Each Fund intends to continue to qualify (or for the Value+Growth Fund,
intends to qualify) as a regulated investment company under Subchapter M of the
Internal Revenue Code (the "Code") and, if so qualified, will not be liable for
federal income taxes to the extent its earnings are distributed. Dividends
derived from net investment income and net short-term capital gains are taxable
to shareholders as ordinary income and long-term capital gain dividends are
taxable to shareholders as long-term capital gain regardless of how long the
shares have been held and whether received in cash or shares. Long-term capital
gain dividends received by individual shareholders are taxed at a maximum rate
of 28%. Dividends declared in October, November or December to shareholders of
record as of a date in one of those months and paid during the following January
are treated as paid on December 31 of the calendar year declared. A portion of
the dividends paid by the Funds may qualify for the dividends received deduction
available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
26
<PAGE> 28
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over". The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends, periodic
investment and redemption programs and reinvestment programs for unit investment
trusts sponsored by Everen Securities, Inc. Information for income tax purposes,
including information regarding any foreign taxes and credits, will be provided
after the end of the calendar year. Shareholders are encouraged to retain copies
of their account confirmation statements or year-end statements for tax
reporting purposes. However, those who have incomplete records may obtain
historical account transaction information at a reasonable fee.
NET ASSET VALUE
The net asset value per share of a Fund is determined separately for each class
by dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a Fund will generally be lower than that of the
Class A shares of the Fund because of the higher expenses borne by Class B and
Class C shares. Portfolio securities that are primarily traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
priced is used. Exchange traded fixed income options are valued at the last sale
price unless there is no sale price, in which event current prices provided by
market makers are used. Over-the-counter traded options are valued based upon
current prices provided by market makers. 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. Because of the
need to obtain prices as of the close of trading on various exchanges throughout
the world, the calculation of net asset value of a Fund investing in foreign
securities does not necessarily take place contemporaneously with the
determination of the prices of a Fund's foreign securities, which may be made
prior to the determination of net asset value. For purposes of determining the
Fund's net asset value of a Fund investing in foreign securities, all assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. Dollar values at the mean between the bid and offered quotations of
such currencies against U.S. Dollars as last quoted by a recognized dealer. If
an event were to occur, after the value of a security was so established but
before the net asset value per share was determined, which was likely to
materially change the net asset value, then that security would be valued using
fair value considerations by the Board of Trustees or its delegates. On each day
the New York Stock Exchange (the "Exchange") is open for trading, the net asset
value is determined as of the earlier of 3:00 p.m. Chicago time or the close of
the Exchange.
27
<PAGE> 29
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial or a contingent deferred sales charge
but are subject to higher ongoing expenses than Class A shares and do not
convert into another class. When placing purchase orders, investors must specify
whether the order is for Class A, Class B or Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
---------------------------------- ------------------------ ----------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering price reduced for certain purchases
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C None 0.75% No conversion feature
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing. 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).
28
<PAGE> 30
SPECIAL PROMOTION. From the date of this prospectus until at least November 30,
1995 ("Special Offering Period"), KDI intends to reallow the full applicable
sales charge with respect to Class A shares of the Value+Growth Fund purchased
during the Special Offering Period (not including shares acquired at net asset
value) and to pay an additional commission of .50% with respect to Class B
shares of the Value+Growth Fund purchased during the Special Offering Period not
including exchanges or other transactions for which commissions are not paid.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------------
ALLOWED
TO
DEALERS
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING ASSET OFFERING
AMOUNT OF PURCHASE PRICE VALUE* PRICE
------ ------ ------
<S> <C> <C> <C>
Less than $50,000...................................... 5.75 % 6.10 % 5.20 %
$50,000 but less than $100,000......................... 4.50 4.71 4.00
$100,000 but less than $250,000........................ 3.50 3.63 3.00
$250,000 but less than $500,000........................ 2.60 2.67 2.25
$500,000 but less than $1 million...................... 2.00 2.04 1.75
$1 million and over.................................... .00 ** .00 ** ***
- ---------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which KFS or DVA does not serve as investment manager
("non-Kemper fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. During the Special Offering Period, dealers will be
paid a commission of .50% of the amount of shares of the Value+Growth purchased
pursuant to this net asset value purchase privilege. The redemption of the
shares of the non-Kemper fund is, for federal income tax purposes, a sale upon
which a gain or loss may be realized.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 provided
in either case that such plan has not less than 200 eligible employees (the
"Large Order NAV Purchase Privilege"). Redemption within one year of shares
purchased
29
<PAGE> 31
under the Large Order NAV Purchase Privilege may be subject to a contingent
deferred sales charge. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund to
employer sponsored employee benefit plans using the subaccount recordkeeping
system made available through the Shareholder Service Agent at net asset value
in accordance with the Large Order NAV Purchase Privilege up to the following
amounts: 1.00% of the net asset value of shares sold on amounts up to $5 million
in any calendar year, .50% on the next $5 million and .25% on amounts over $10
million in such calendar year. KDI may in its discretion compensate investment
dealers or other financial services firms in connection with the sale of Class A
shares of each Fund to other purchasers at net asset value in accordance with
the Large Order NAV Purchase Privilege up to the following amounts: 1.00% of the
net asset value of shares sold on amounts up to $3 million, .50% on the next $2
million and .25% on amounts over $5 million. For purposes of determining the
appropriate commission percentage to be applied to a particular sale under the
foregoing schedules, KDI will consider the cumulative amount invested by the
purchaser in a Fund and other Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases," including purchases pursuant to
the "Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
referred to above. The privilege of purchasing Class A shares of a Fund at net
asset value under the Large Order NAV Purchase Privilege is not available if
another net asset value purchase privilege is also applicable.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI; (c) officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (d) shareholders who
owned shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of KDF (or a Kemper Fund acquired by exchange of KDF
shares) since that date, for themselves or members of their families; and (e)
any trust, pension, profit-sharing or other benefit plan for only such persons.
Class A shares may be sold at net asset value in any amount to selected
employees (including their spouses and dependent children) of banks and other
financial services firms that provide administrative services related to order
placement and payment to facilitate transactions in shares of the Funds for
their clients pursuant to an agreement with KDI or one of its affiliates. Only
those employees of such banks and other firms who as part of their usual duties
provide services related to transactions in Fund shares may purchase Fund Class
A shares at net asset value hereunder. Class A shares may be sold at net asset
value in any amount to unit investment trusts sponsored by Everen Securities,
Inc. In addition, unitholders of unit investment trusts sponsored by Everen
Securities, Inc. or its predecessors may purchase a Fund's Class A shares at net
asset value through reinvestment programs described in the prospectuses of such
trusts which have such programs. Class A shares of a Fund may be sold at net
asset value through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms that adhere to certain
standards established by KDI, including a requirement that such shares be sold
for the benefit of their clients participating in a "wrap account" or similar
program under which such clients pay a fee to the investment adviser or other
firm. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the Funds.
The Funds may also issue Class A shares at net asset value in connection with
the acquisition of the assets of or merger or consolidation with another
investment company, or to shareholders in connection with the investment or
reinvestment of income and capital gain dividends.
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,
30
<PAGE> 32
all orders from an organized group will have to be placed through a single
investment dealer or other firm and identified as originating from a qualifying
purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. Class B shareholders of the Growth Fund, Small Cap Fund and Total
Return Fund who acquired their shares as a result of the acquisition by those
Funds of the assets of the Growth Portfolio, Small Capitalization Equity
Portfolio and Total Return Portfolio, respectively, of Kemper Portfolios,
formerly known as Kemper Investment Portfolios ("KIP"), hold them subject to the
same conversion period schedule as that of their KIP Portfolio. Class B shares
representing Initial Shares of a former KIP Portfolio will automatically convert
to Class A shares of the applicable Fund six years after issuance of the Initial
Shares for shares issued on or after February 1, 1991 and seven years after
issuance of the Initial Shares for shares issued before February 1, 1991. The
purpose of the conversion feature is to relieve holders of Class B shares from
the distribution services fee when they have been outstanding long enough for
KDI to have been compensated for distribution related expenses. For purposes of
conversion to Class A shares, shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares in a
shareholder's Fund account will be converted to Class A shares on a pro rata
basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial or contingent deferred
sales charge is imposed. Since Class C shares are sold without an initial sales
charge, the full amount of the investor's purchase payment will be invested in
Class C shares for his or her account. KDI pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of .75 of 1% of
net assets attributable to Class C shares maintained and serviced by the firm.
KDI is compensated by each Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee
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<PAGE> 33
up to the level of the discount or commission allowable or payable to dealers,
as described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Funds, or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day. The
Funds reserve the right to determine the net asset value more frequently than
once a day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly. Collection may take significantly longer
for a check drawn on a foreign bank than for a check drawn on a domestic bank.
Therefore, if an order is accompanied by a check drawn on a foreign bank, funds
must normally be collected before shares will be purchased. See "Purchase and
Redemption of Shares" in the Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
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<PAGE> 34
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment, it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days from receipt by a Fund of the purchase
amount. The redemption within one year of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge (see "Purchase of Shares") and the redemption
of Class B shares may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge--Class B Shares" below).
Because of the high cost of maintaining small accounts, the Funds reserve the
right to redeem an account (and, in the case of Class B shares, impose any
applicable contingent deferred sales charge) that falls below the minimum
investment level, currently $1,000, as a result of redemptions. Currently,
Individual Retirement Accounts and employee benefit plan accounts are not
subject to this procedure. A shareholder will be notified in writing and will be
allowed 60 days to make additional purchases to bring the account value up to
the minimum investment level before a Fund redeems the shareholder's account.
The investment required to reach that level may be made at net asset value
(without any initial sales charge in the case of Class A shares).
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its 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 (prior to the
imposition of any contingent deferred sales charge in the case of Class B
shares) 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,
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<PAGE> 35
executor or guardian is named in the account registration. Other institutional
account holders and guardian account holders of custodial accounts for gifts and
transfers to minors may exercise this special privilege of redeeming shares by
telephone request or written request without signature guarantee subject to the
same conditions as individual account holders and subject to the limitations on
liability described under "General" above, provided that this privilege has been
pre-authorized by the institutional account holder or guardian account holder by
written instruction to the Shareholder Service Agent with signatures guaranteed.
Telephone requests may be made by calling 1-800-621-1048. Shares purchased by
check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed
under this privilege of redeeming shares by telephone request until such shares
have been owned for at least 15 days. This privilege of redeeming shares by
telephone request or by written request without a signature guarantee may not be
used to redeem shares held in certificated form and may not be used if the
shareholder's account has had an address change within 30 days of the redemption
request. During periods when it is difficult to contact the Shareholder Service
Agent by telephone, it may be difficult to use the telephone redemption
privilege, although investors can still redeem by mail. The Funds reserve the
right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if KFS deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Funds are not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Funds currently do not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 15
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
redemption privilege. The Funds reserve the right to terminate or modify this
privilege at any time.
CONTINGENT DEFERRED SALES CHARGE -- LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge of 1% may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege if they
are redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemptions by
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<PAGE> 36
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); and
(e) redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
------------------------------------------------------------------------ ----------
<S> <C>
First................................................................... 4%
Second.................................................................. 3%
Third................................................................... 3%
Fourth.................................................................. 2%
Fifth................................................................... 2%
Sixth................................................................... 1%
</TABLE>
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios, hold them
subject to the same CDSC schedule that applied when those shares were purchased,
as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR OF ----------------------------------------------------------------------------------------
REDEMPTION SHARES PURCHASED ON OR AFTER
AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
PURCHASE MARCH 1, 1993 MARCH 1, 1993 FEBRUARY 1, 1991
------------------------ ----------------------------- ----------------------------- ------------------------
<S> <C> <C> <C>
First................... 4% 3% 5%
Second.................. 3% 3% 4%
Third................... 3% 2% 3%
Fourth.................. 2% 2% 2%
Fifth................... 2% 1% 2%
Sixth................... 1% 1% 1%
</TABLE>
The following example will illustrate the operation of the contingent deferred
sales charge. Assume that an investor makes a single purchase of $10,000 of a
Fund's Class B shares and that 16 months later the value of the shares has grown
by $1,000 through reinvested dividends and by an additional $1,000 in
appreciation to a total of $12,000. If the investor were then to redeem the
entire $12,000 in share value, the contingent deferred sales charge would be
payable only with respect to $10,000 because neither the $1,000 of reinvested
dividends nor the $1,000 of share appreciation is subject to the charge. The
charge would be at the rate of 3% ($300) because it was in the second year after
the purchase was made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a monthly basis. The period of ownership for this purpose begins the first day
of the month in which the order for the investment is received. For example, an
investment made in June, 1994 will be eligible for the 3% charge if redeemed on
or after June 1, 1995. In the event no specific order is requested, the
redemption will be made first from Class B shares representing reinvested
dividends and then from the earliest purchase of Class B shares. KDI receives
any contingent deferred sales charge directly.
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<PAGE> 37
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" may reinvest up to the full amount redeemed at net
asset value at the time of the reinvestment in Class A shares of a Fund or of
the other listed Kemper Mutual Funds. A shareholder of a Fund or other Kemper
Mutual Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares") or Class B shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in Class A shares or Class B
shares, as the case may be, of a Fund or of other Kemper Mutual Funds. The
amount of any contingent deferred sales charge also will be reinvested. These
reinvested shares will retain their original cost and purchase date for purposes
of the contingent deferred sales charge. Also, a holder of Class B shares who
has redeemed shares may reinvest up to the full amount redeemed, less any
applicable contingent deferred sales charge that may have been imposed upon the
redemption of such shares, at net asset value in Class A shares of a Fund or of
the other Kemper Mutual Funds listed under "Special Features--Class A
Shares--Combined Purchases." Purchases through the reinvestment privilege are
subject to the minimum investment requirements applicable to the shares being
purchased and may only be made for Kemper Funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of a Fund, the reinvestment may
be subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinvestment privilege may be terminated or modified at any
time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares may be purchased
at the rate applicable to the discount bracket attained by combining concurrent
investments in Class A shares of any of the following funds: Kemper Technology
Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization
Equity Fund, Kemper Income and Capital Preservation Fund, Kemper Municipal Bond
Fund, Kemper Diversified Income Fund, Kemper High Yield Fund, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper
Cash Reserves Fund (available only upon exchange or conversion from Class A
shares of another Kemper Mutual Fund), Kemper U.S. Mortgage Fund, Kemper
Short-Intermediate Government Fund, Kemper Value+Growth Fund and Kemper-Dreman
Fund, Inc. ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Kemper Money Market Fund, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Tax-Exempt
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<PAGE> 38
New York Money Market Fund or Investors Cash Trust ("Money Market Funds"), which
are not considered "Kemper Mutual Funds" for purposes hereof. For purposes of
the Combined Purchases feature described above as well as for the Letter of
Intent and Cumulative Discount features described below, employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent may include: (a) Money Market Funds as
"Kemper Mutual Funds", (b) all classes of shares of any Kemper Mutual Fund and
(c) the value of any other plan investment, such as guaranteed investment
contracts and employer stock, maintained on such subaccount record keeping
system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds that were acquired by purchase (not
including shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in the applicable prospectus. Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Tax-Exempt New York Money
Market Fund and Investors Cash Trust are available on exchange but only through
a financial services firm having a services agreement with KDI. Exchanges may
only be made for funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Tax-Exempt New York Money Market Fund is available
for sale only in New York, Connecticut, New Jersey and Pennsylvania.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on
37
<PAGE> 39
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of the
contingent deferred sales charge.
Class B Shares. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of the contingent deferred sales charge
that may be imposed upon the redemption of the shares received on exchange,
amounts exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values.
General. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be exchanged until they have been owned for at least 15 days. In
addition, shares of a Kemper Mutual Fund (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 total value of shares being exchanged must at least equal the minimum
investment requirement of the fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. Shareholders interested in exercising the
exchange privilege may obtain prospectuses of the other funds from dealers,
other firms or KDI. Exchanges may be accomplished by a written request to Kemper
Mutual Funds, Attention: Exchange Department, P.O. Box 419557, Kansas City,
Missouri 64141-6557, or by telephone if the shareholder has given authorization.
Once the authorization is on file, the Shareholder Service Agent will honor
requests by telephone at 1-800-621-1048, 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.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," including the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange. This privilege may not be used for the
exchange of shares held in certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $500 and maximum $2,500)
from their Fund account and transfer the proceeds to their bank, savings and
loan, or credit union checking account. By enrolling in EXPRESS-Transfer, the
shareholder authorizes the Shareholder Service Agent to rely upon telephone
instructions from ANY PERSON to transfer the specified amounts between the
shareholder's Fund account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares--General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday, 8:00 a.m. to 3:00 p.m.
Chicago time. Shareholders may terminate this privilege by sending written
notice to Kemper Service
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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").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, monthly investments are made automatically from the shareholder's account
at a bank, savings and loan or credit union into the shareholder's Fund account.
By enrolling in Bank Direct Deposit, the shareholder authorizes the Fund and its
agents to either draw checks or initiate Automated Clearing House debits against
the designated account at a bank or other financial institution. This privilege
may be selected by completing the appropriate section on the Account Application
or by contacting the Shareholder Service Agent for appropriate forms. A
shareholder may terminate his or her Plan by sending written notice to Kemper
Service Company, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
by a shareholder will become effective within thirty days after the Shareholder
Service Agent has received the request. A Fund may immediately terminate a
shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. The Funds may terminate or modify this privilege at any
time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
under a systematic withdrawal plan is 10% of the net asset value of the account.
Shares are redeemed so that the payee will receive payment approximately the
first of the month. Any income and capital gain dividends will be automatically
reinvested at net asset value. A sufficient number of full and fractional shares
will be redeemed to make the designated payment. Depending upon the size of the
payments requested and fluctuations in the net asset value of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class B
shares made pursuant to a systematic withdrawal plan. The right is reserved to
amend the systematic withdrawal plan on 30 days' notice. The plan may be
terminated at any time by the investor or the Funds.
TAX-SHELTERED RETIREMENT PLANS. KFS provides retirement plan services and
documents and KDI can establish investor accounts in any of the following types
of retirement plans:
- - Individual Retirement Accounts ("IRAs") trusteed by IFTC. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also trusteed by IFTC. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
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Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from KDI upon request. The brochures for plans trusteed by
IFTC describe the current fees payable to IFTC for its services as trustee.
Investors should consult with their own tax advisers before establishing a
retirement plan.
PERFORMANCE
The Funds may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of the Funds.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Russell 1000(R)
Growth Index, the Wilshire Large Company Growth Index, the Wilshire 750 Mid Cap
Company Growth Index, the Standard & Poor's/Barra Value Index, Standard &
Poor's/Barra Growth Index and the Russell 1000(R) Value Index. The performance
of a Fund such as the Total Return Fund may also be compared to the combined
performance of two indexes, such as a 60%/40% combination of the Standard &
Poor's 500 Stock Index and the Lehman Brothers Government/Corporate Bond Index
or for the Value+Growth Fund to a 50%/50% combination of the Russell 1000(R)
Growth Index and the Russell 1000(R) Value Index. The performance of a Fund may
also be compared to the performance of other mutual funds or mutual fund indexes
with similar objectives and policies as reported by independent mutual fund
reporting services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National IndexTM or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
A Fund may depict the historical performance of the securities in which 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. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund. The relative performance of growth stocks versus
value stocks may also be discussed.
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Each Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Average annual total return
figures do, and total return figures may, include the effect of the contingent
deferred sales charge for the Class B shares that may be imposed at the end of
the period in question. Performance figures for the Class B shares not including
the effect of the applicable contingent deferred sales charge would be reduced
if it were included.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares may be subject to a
contingent deferred sales charge as described above. Additional information
concerning each Fund's performance appears in the Statement of Additional
Information. Additional information about each Fund's performance also appears
in its Annual Report to Shareholders, which is available without charge from the
Fund.
CAPITAL STRUCTURE
The Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Blue Chip Fund was
organized as a business trust under the laws of Massachusetts on May 28, 1987.
The Growth Fund was organized as a business trust under the laws of
Massachusetts on October 24, 1985 and, effective January 31, 1986, that Fund
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
Growth Fund, Inc., a Maryland corporation organized in 1965. The Small Cap Fund
was organized as a business trust under the laws of Massachusetts on October 24,
1985 and, effective January 31, 1986, that Fund pursuant to a reorganization
succeeded to the assets and liabilities of Kemper Summit Fund, Inc., a Maryland
corporation organized in 1968. Prior to February 1, 1992, the Small Cap Fund was
known as "Kemper Summit Fund." The Technology Fund was organized as a business
trust under the laws of Massachusetts on October 24, 1985 as Technology Fund and
changed its name to Kemper Technology Fund effective February 1, 1988. Effective
January 31, 1986, Technology Fund pursuant to a reorganization succeeded to the
assets and liabilities of Technology Fund, Inc., a Maryland corporation
originally organized as a Delaware corporation in 1948. Technology Fund was
known as Television Fund, Inc. until 1950 and as Television-Electronics Fund,
Inc. until 1968. The Total Return Fund was organized as a business trust under
the laws of Massachusetts on October 24, 1985 and, effective January 31, 1986,
that Fund pursuant to a reorganization succeeded to the assets and liabilities
of Kemper Total Return Fund, Inc., a Maryland corporation organized in 1963. The
Total Return Fund was known as Balanced Income Fund, Inc. until 1972 and as
Supervised Investors Income Fund, Inc. until 1977. The Value+Growth Fund was
organized as a business trust under the laws of Massachusetts on June 12, 1995
under the name Kemper Value Plus Growth Fund and does business as Kemper
Value+Growth Fund. The investment manager invested the "seed money" as the sole
shareholder of the Value+Growth Fund before the public offering of its shares
and therefore as of the date of this prospectus controls the Value+Growth Fund.
Each Fund may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. Currently, each Fund offers four
classes of shares. These are Class A, Class B and Class C shares, as well as
Class I shares, which are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of KFS and its affiliates; and (b)
the following investment advisory clients of KFS and its investment advisory
affiliates that invest at least $1 million in a Fund: (1) unaffiliated benefit
plans, such as qualified retirement plans (other than individual retirement
accounts and self-directed retirement plans); (2) unaffiliated banks and
insurance companies purchasing for their own accounts; and (3) endowment funds
of unaffiliated non-profit organizations. The Board of Trustees of a Fund may
authorize the issuance of additional classes and additional Portfolios if deemed
desirable, each with its own investment objectives, policies and restrictions.
Since the Funds may offer multiple Portfolios, each is known as a "series
company." Shares of a Fund have equal noncumulative voting rights except that
Class B and Class C shares have separate and exclusive voting rights with
respect to each Fund's Rule 12b-1 Plan. Shares of each class also have equal
rights with respect to dividends, assets and liquidation of such Fund subject to
any preferences (such as
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[KEMPER MUTUAL FUNDS LOGO] INVESTMENT MANAGER:
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER:
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, IL 60603
KEF-1 (10/95) [Recycle Logo] printed on recycled paper
KEMPER
EQUITY FUNDS
October 16, 1995
----------------
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER SMALL
CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH
FUND
----------------
KEMPER
[KEMPER MUTUAL FUNDS LOGO]
